;-NRLF 


mK 

mm 


S 


ttitnct  -printers. 


•POLITICAL 

ECONOMY. 


BY 

W.  STANLEY  JEVONS,  LL.D.,  M.A.,  F.R.S., 

**   * 

PROFESSOR   OF   POLITICAL  ECONOMY   IN  UNIVERSITY  COLLEGE,   LONDON; 

EXAMINER   IN    LOGIC  AND   MORAL   PHILOSOPHY   IN   THE 

UNIVERSITY  OF   LONDON. 


.  -  • 
UNlVER.SiT 

/ 


NEW  YORK: 
D.    APPLETON    AND    COMPANY, 

549  AND  551  BROADWAY. 

1880. 


'A 


CONTENTS. 

CHAP.  PAGE 

I.— INTRODUCTION, 7 

II.— UTILITY, 17 

III. — PRODUCTION  OF  WEALTH,       ...  24 

IV.— DIVISION  OF  LABOUR,      ....  32 

V.— CAPITAL, 42 

VI.— DISTRIBUTION  OF  WEALTH,     ...  48 

VII.— WAGES, 53 

VIII.— TRADES-UNIONS, 61 

IX. — CO-OPERATION,  ETC.,        ....  77 

X.— THE  TENURE  OF  LAND,  .        .        .        .  87 

XL — EXCHANGE, 95 

XII. — MONEY,      . 103 

XIIL— CREDIT  AND  BANKING,     .       .        .        .no 

XIV.— CREDIT  CYCLES,        .       .        .        .        .  115 

XV. — THE  FUNCTIONS  OF  GOVERNMENT,        .  123 

XVI.— TAXATION,  .  .126 

183B70 


/ 


PREFACE. 


IN  preparing  this  little  treatise,  I  have  tried  to  put  the 
truths  of  Political  Economy  into  a  form  suitable  for 
elementary  instruction.  While  connected  with  Owens 
College,  it  was  my  duty,  as  Cobden  Lecturer  on 
Political  Economy,  to  instruct  a  class  of  pupil-teachers, 
in  order  that  they  might  afterwards  introduce  the 
teaching  of  this  important  subject  into  elementary 
schools.  There  can  be  no  doubt  that  it  is  most 
desirable  to  disseminate  knowledge  of  the  truths  of 
political  economy  through  all  classes  of  the  population 
by  any  means  which  may  be  available.  From  ignor- 
ance of  these  truths  arise  many  of  the  worst  social 
evils — disastrous  strikes  and  lockouts,  opposition  to 
improvements,  improvidence,  destitution,  misguided 
chanty,  and  discouraging  failure  in  many  well-intended 
measures.  More  than  forty  years  ago  Miss  Martineau 
successfully  popularised  the  truths  of  political  economy 
in  her  admirable  tales.  About  the  same  time,  Arch- 
bishop Whately  was  much  struck  with  the  need  of 
inculcating  knowledge  of  these  matters  at  an  early 
age.  With  this  view  he  prepared  his  "  Easy  Lessons 
on  Money  Matters,"  of  which  many  editions  have 
been  printed.  In  early  boyhood  I  learned  my  first 
ideas  of  political  economy  from  a  copy  of  these 
lessons,  from  the  preface  to  which  I  quote  these 
remarks  of  Whately  :  "  The  rudiments  of  sound  know- 
ledge concerning  these  (subjects)  may,  it  has  been 
found  by  experience,  be  communicated  at  a  very  early 
age.  .  .  .  Those,  therefore,  who  are  engaged  in  con- 
ducting, or  in  patronising  or  promoting  education, 


PREFACE. 


should  consider  it  a  matter  of  no  small  moment  to 
instil,  betimes,  just  notions  on  subjects  with  which  all 
must  in  after-life  be  practically  conversant,  and  in 
which  no  class  of  men,  from  the  highest  to  the  lowest, 
can,  in  such  a  country  as  this  at  least,  be  safely  left  in 
ignorance  or  in  error."  In  later  years  like  opinions 
have  been  held  and  efforts  made  by  Mr.  William  Ellis, 
Professor  W.  B.  Hodgson,  Dr.  John  Watts,  Mr. 
Templar,  and  others,  and  experience  seems  to  confirm 
both  the  need  and  the  practicability  of  the  teaching 
advocated  by  Whately.  But  it  is  evident  that  one 
condition  of  success  in  such  efforts  is  the  possession 
of  a  small  text-book  exactly  suited  to  the  purposes  in 
view.  Relying  upon  my  experience  of  ten  years  in  the 
instruction  of  pupil-teachers  at  Manchester,  I  have 
now  put  my  lessons  into  the  simplest  form  which  the 
nature  of  the  subject  seems  to  render  advisable. 

It  is  hoped  that  this  little  treatise  may  also 
serve  as  a  stepping-stone  to  a  knowledge  of  the  science 
among  general  readers  of  maturer  age,  who  have 
hitherto  neglected  the  study  of  political  economy. 

Owing  to  the  narrow  limits  of  the  space  at  my  dis- 
posal, it  was  impossible  to  treat  the  whole  of  the 
science  in  a  satisfactory  way.  I  have,  therefore, 
omitted  some  parts  of  political  economy  altogether, 
and  have  passed  over  other  parts  very  briefly.  Thus 
the  larger  portion  of  my  space  has  been  reserved  for 
such  subjects  as  Production,  Division  of  Labour,  Capital 
and  Labour,  Trades-Unions,  and  Commercial  Crises, 
which  are  most  likely  to  be  interesting  and  useful  to 
readers  of  this  Primer. 


UNIVERSITY  COLLEGE, 
GOWER  STREET,  LONDON,  W.C. 

$ist  January -,  1878. 


SCIENCE    PRIMERS. 

POLITICAL   ECONOMY. 
CHAPTER  I.— INTRODUCTION. 

i.  What  is  Political  Economy?  Political! 
*  Economy  treats  of  the  wealth  of  nations;  it  in-i 
quires  into  the  causes  which  make  one  nation  more 
rich  and  prosperous  than  another.  It  aims  at  teaching 
N  what  should  be  done  in  order  that  poor  people  may  be 
as  few  as  possible,  and  that  everybody  may,  as  a  gene- 
ral rule,  be  well  paid  for  his  work.  Other  sciences,  no 
doubt,  assist  us  in  reaching  the  same  end.  The 
science  of  mechanics  shows  how  to  obtain  force,  and 
how  to  use  it  in  working  machines.  Chemistry 
teaches  how  useful  substances  may  be  produced — how 
beautiful  dyes  and  odours  and  oils,  for  instance,  may 
be  extracted  from  the  disagreeable  refuse  of  the  gas- 
works.  Astronomy  is  necessary  for  the  navigation  of 
the  oceans.  Geology  guides  in  the  search  for  coal 
and  metals. 

Various  social  sciences,  also,  are  needed  to  promote 
the  welfare  of  mankind.  Jurisprudence  treats  of  the 
legal  rights  of  persons,  and  how  they  may  be  best 
defined  and  secured  by  just  laws.  Political  Philosophy 
inquires  into  the  different  forms  of  government  and 
their  relative  advantages.  Sanitary  Science  ascertains 
the  causes  of  disease.  The  science  of  Statistics 
collects  all  manner  of  facts  relating  to  the  state  or 
community.  All  these  sciences  are  useful  in  show- 
ing how  we  may  be  made  more  healthy,  wealthy, 
and  wise. 

But  Political  Economy  is  distinct  from  all  these 
other  sciences,  and  treats  of  wealth  itself;  it  inquires 
what  wealth  is ;  how  we  can  best  consume  it  when  we 
have  got  it;  and  how  we  may  take  advantage  of 
the  other  sciences  to  get  it.  People  are  fond  of  find- 

c 


8  PRIMER  OF  POLITICAL  ECONOMY.         [CH. 

ing  fault  with  political  economy,  because  it  treats 
only  of  wealth  ;  they  say  that  there  are  many 
better  things  than  wealth,  such  as  virtue,  affection, 
generosity.  They  would  have  us  study  these  good 
qualities  rather  than  mere  wealth.  A  man  may  grow 
rich  by  making  hard  bargains,  and  saving  up  his 
money  like  a  miser.  Now  as  this  is  not  nearly  so 
good  as  if  he  were  to  spend  his  wealth  for  the  benefit 
of  his  relatives,  friends,  and  the  public  generally,  they 
proceed  to  condemn  the  science  of  wealth. 

But  these  complainers  misunderstand  the  purpose  of 
a  science  like  political  economy.  They  do  not  see  that 
in  learning  we  must  do  one  thing  at  a  time.  We  can- 
not learn  the  social  sciences  all  at  the  same  time.  No 
one  objects  to  astronomy  that  it  treats  only  of  the 
stars,  or  to  mathematics  that  it  treats  only  of  numbers 
and  quantities.  It  would  be  a  very  curious  Science 
Primer  which  should  treat  of  astronomy,  geology, 
chemistry,  physics,  physiology,  &c.,  all  at  once. 
There  must  be  many  physical  sciences,  and  there 
must  be  also  many  social  sciences,  and  each  of  these 
sciences  must  treat  of  its  own  proper  subject,  and  not 
of  things  in  general. 

2.  Mistakes  about  Political  Economy.  A 
great  many  mistakes  are  made  about  the  science  we 
are  going  to  consider  by  people  who  ought  to  know 
better.  These  mistakes  often  arise  from  people  think- 
ing that  they  understand  all  about  political  economy 
without  studying  it.  No  ordinary  person  of  sense 
ventures  to  contradict  a  chemist  about  chemistry,  or 
an  astronomer  about  eclipses,  or  even  a  geologist 
about  rocks  and  fossils.  But  everybody  has  his 
opinion  one  way  or  another  about  bad  trade,  or  the 
effect  of  high  wages,  or  the  harm  of  being  underbid  » 
by  cheap  labour,  or  any  one  of  hundreds  of  questions 
of  social  importance.  It  does  not  occur  to  sucfr 
people  thatjhese  matters  are  really  more  difficult  to 
imgerstandjhan  chemistry,  or  astronomy",  orgeology, 
thatlf  lifetime  of  study  is" not  sufficient  to  enaSle 


I.]  INTRODUCTION. 


us  to  speak  confidently  about  them.  Yet,  they  who 
have  never  studied  political  economy  at  all,  are  usually 
the  most  confident. 

The  fact  is  that,  just  as  physical  science  was  formerly 
hated,  so  now  there  is  a  kind  of  ignorant  dislike  and 
impatience  of  political  economy.  People  wish  to 
follow  their  own  impulses  and  prejudices,  and  are 
vexed  when  told  that  they  are  doing  just  what  will 
have  the  opposite  effect  to  that  which  they  intend. 
Take  the  case  of  so-called  charity.  There  are 
many  good-hearted  people  who  think  that  it  is  virtuous 
to  give  alms  to  poor  people  who  ask  for  them,  without 
considering  the  effect  produced  upon  the  people. 
They  see  the  pleasure  of  the  beggar  on  getting  the 
alms,  but  they  do  not  see  the  after  effects,  namely, 
that  beggars  become  more  numerous  than  before. 
Much  of  the  poverty  and  crime  which  now  exist  have 
been  caused  by  mistaken  charity  in  past  times,  which 
has  caused  a  large  part  of  the  population  to  grow  up* 
careless,  and  improvident,  and  idle.  Political  economy -j 
proves  that,  instead  of  giving  casual  ill-considered  alms,/ 
we  should  educate  people,  teach  them  to  work  and/ 
earn  their  own  livings,  and  save  up  something  to  livei 
upon  in  old  age.  If  they  continue  idle  and  improvi- 
dent, they  must  suffer  the  results  of  it.  But  as  this 
seems  hard-hearted  treatment,  political  economists  are 
condemned  by  soft-hearted  and  mistaken  people.  The 
science  is  said  to  be  a  dismal,  cold-blooded  one,  and 
it  is  implied  that  the  object  of  the  science  is  to  make 
the  rich  richer,  and  to  leave  the  poor  to  perish.  All 
this  is  quite  mistaken. 

The  political  economist,  when  he  inquires  how 
people  may  most  easily  acquire  riches,  does  not  teach 
that  the  rich  man  should  keep  his  wealth  like  a  miser, 
nor  spend  it  in  luxurious  living  like  a  spendthrift. 
There  is  absolutely  nothing  in  the  science  to  dissuade 
the  rich  man  from  spending  his  wealth  generously  and 
yet  wisely.  He  may  prudently  help  his  relatives  and 
friends;  he  may  establish  useful  public  institutions, 


io          PRIMER   OF  POLITICAL  ECONOMY.         [CH. 

such  as  free  public  libraries,  museums,  public  parks, 
dispensaries,  &c. ;  he  may  assist  in  educating  the  poor, 
or  promoting  institutions  for  higher  education  ;  he  may 
relieve  any  who  are  suffering  from  misfortunes  which 
could  not  have  been  provided  against ;  cripples,  blind 
people,  and  all  who  are  absolutely  disabled  from  help- 
ing themselves,  are  proper  objects  of  the  rich  man's 
charity.  All  that  the  political  economist  insists  upon 
is  that  charity  shall  be  really  charity,  and 
shall  not  injure  those  whom  it  is  intended 
to  aid.  It  is  sad  to  think  that  hitherto  much  harm 
has  been  done  by  those  who  wished  only  to  do  good. 
It  is  sad,  again,  to  see  thousands  of  persons  trying 
to  improve  their  positions  by  means  which  have  just 
Ithe  opposite  effect,  I  mean  by  strikes,  by  refusing  to 
yuse  machinery,  and  by  trying,  in  various  ways,  to 
resist  the  production  of  wealth.  Working  men  have 
made  a  political  economy  of  their  own :  they  want  to 
make  themselves  rich  by  taking  care  not  to  produce 
too  much  riches.  They,  again,  see  an  immediate 
effect  of  what  they  do,  but  they  do  not  see  what 
happens  as  the  after  result.  It  is  the  same  with  the 
question  of  Free  Trade.  In  England  we  have  at 
length  learned  the  wisdom  of  leaving  commerce  free. 
In  other  countries,  and  even  in  the  Australian  Colonies, 
laws  are  yet  passed  to  make  people  richer  by  prevent- 
ing them  from  using  the  abundant  products  of  other 
lands.  People  actually  refuse  to  see  that  wealth  must 
be  increased  by  producing  it  where  it  can  be  produced 
most  easily  and  plentifully.  Each  trade,  each  town, 
each  nation  must  furnish  what  it  can  yield  most 
cheaply,  and  other  goods  must  be  bought  from  the 
places  where  they  also  can  be  raised  most  easily. 

Political  economy  teaches  us  to  look  beyond  the 
immediate  effect  of  what  we  do,  and  to  seek  the  good 
of  the  whole  community,  and  even  of  the  whole  of 
mankind.  The  present  prosperity  of  England  is  greatly 
due  to  the  science  which  Adam  Smith  gave  to  the 
world  in  his  "Wealth  of  Nations."  He  taught  us 


I.]  INTRODUCTION. 


the  value  of  Free  Labour  and  Free  Trade, 
and  now,  a  hundred  years  after  the  publication  of  his 
great  book,  there  ought  not  to  be  so  many  mistaken 
people  vainly  acting  in  opposition  to  his  lessons.  It 
is  certain  that  if  people  do  not  understand  a 
true  political  economy,  they  will  make  a 
false  one  of  their  own.  Hence  the  imperative 
need  that  no  one,  neither  man  nor  woman,  should 
grow  up  without  acquiring  some  comprehension  of 
the  science  which  we  are  going  to  study. 

3.  Divisions  of  the  Science.     I  will  begin  by 
stating  the  order  in  which  the  several  branches  or 
divisions  of  the  science  of  economy  are  to  be  con- 
sidered in  this  little  treatise.     Firstly,  we  must  learn  j 
what  wealth,  the  subject  of  the  science,  consists  of. 
§eeondly,  we  proceed  to  inquire  how  wealth  is  used 
or  consumed  ;  nothing,  we  shall  see,  can  be  wealth, 
unless  it  be  put  to  some  use,  and  before  we  make 
wealth  we  must  know  what  we  want  to  use.     TJairdly, 
we  can  go  on  to  consider  how  wealth  is  produced  or 
brought  into  existence  ;  and  how,  in  the  fourth  place, 
having  been  produced,  it  is  shared  among  the  different  * 
classes  of  people  who  have  had  a  hand  in  producing 
it.      Briefly,  we  may  say  that  political  economy  treats 

of  (i)  The  Nature,  (2)  The  Consumption,  _ 
(3)  The  Production,  and  (4)  The  Distribution 
of  Wealth.  It  will  also  be  necessary  to  say  a  little 
about  Taxation.  A  part  of  the  wealth  of  evefy 
country  must  be  taken  by  the  government,  in  order 
to  pay  the  expenses  of  defending  and  governing  the 
nation.  But  taxation  may  come,  perhaps,  under  the 
head  of  distribution. 

4.  Wealth  and  Natural  Riches.     We  do  not 
learn  anything  by  reading  that  political  economy 
is  the  science  of  wealth,  unless  we  know  what 
science  is,  and  what  wealth  is.     When  one  term  is 
defined  by  means  of  other  terms,  we  must  understand 
these  other  terms,  in  order  to  get  any  light  upon  the 
subject.      In   the   Primer   of  Logic   I   have   already 


12  PRIMER  OF  POLITICAL  ECONOMY.         [CH. 

attempted  to  explain  what  science  is,  and  I  will  now 
attempt  to  make  plain  what  wealth  is. 

Doubtless  many  people  think  that  there  is  no 
difficulty  in  knowing  what  wealth  is ;  the  real 
difficulty  is  to  get  it.  But  in  this  they  are  mistaken. 
There  are  a  great  many  people  in  this  country  who 
have  made  themselves  rich,  and  few  or  none  of  them 
would  be  able  to  explain  clearly  what  wealth  is.  In 
fact  it  is  not  at  all  easy  to  decide  the  question.  The 
popular  idea  is  that  wealth  consists  of  money,  and 
money  consists  of  gold  and  silver ;  the  wealthy  man, 
then,  would  be  one  who  has  an  iron  safe  full  of  bags 
of  gold  and  silver  money.  But  this  is  far  from  being 
the  case ;  rich  men,  as  a  general  rule,  have  very  little 
money  in  their  possession.  Instead  of  bags  of  money 
they  keep  good  balances  at  their  bankers.  But  this 
again  does  not  tell  us  what  wealth  is,  because  it  is 
difficult  to  say  what  a  bank  balance  consists  of;  the 
balance  is  shown  by  a  few  figures  in  the  bankers* 
books.  As  a  general  rule  the  banker  has  not  got 
in  his  possession  the  money  which  he  owes  to  his 
customers. 

Perhaps  some  one  will  say  that  he  is  beyond  ques- 
tion rich,  who  owns  a  great  deal  of  land.  But  this 
depends  entirely  upon  where  and  what  the  land  is, 
A  man  who  owns  an  English  county  is  very  wealthy  ; 
a  man  might  own  an  equal  extent  of  land  in  Australia, 
without  being  remarkably  rich.  The  savages  of 
Australia,  who  held  the  land  before  the  English 
took  it,  had  enormous  quantities  of  land,  but  they 
were  nevertheless  miserably  poor.  Thus  it  is  plain 
that  land  alone  is  not  wealth. 

It  may  be  urged  that,  in  order  to  form  wealth, 
the  land  should  be  fertile,  the  soil  should  be  goodr 
the  rivers  and  lakes  abounding  in  fish,  and  the  forests 
full  of  good  timber.  Under  the  ground  there  should 
be  plenty  of  coal,  iron,  copper,  reefs  of  gold,  &c.  If, 
in  addition  to  these,  there  is  a  good  climate,  plenty  of 
sunlight,  and  enough,  but  not  too  much,  water,  then 


i.j  INTRODUCTION.  13 

the  country  is  certainly  rich.  It  is  true  that  these 
things  have  been  called  natural  riches ;  but  I 
mention  them  in  order  to  point  out  that  they  are 
not  in  themselves  wealth.  People  may  live  upon 
land  full  of  natural  riches,  as  the  North  American 
Indians  lived  upon  the  country  which  now  forms  the 
United  States ;  nevertheless  they  may  be  very  poor, 
because  they  cannot,  or  they  will  not  labour,  in  such 
a  way  as  to  turn  the  natural  riches  into  wealth.<X 
On  the  other  hand,  people  like  the  Dutch  live  upon 
very  poor  bits  of  land,  and  yet  become  wealthy  by 
skill,  industry  and  providence.  The  fact  is  that 
wealth  is  more  due  to  labour  and  ingenuity  than  to  a 
good  soil  or  climate ;  but  all  these  things  are  needed  in 
order  that  people  shall  become  as  rich  as  the  inhabit- 
ants of  England,  France,  the  United  States,  or  Australia. 
5.  What  is  Wealth  ?  Nassau  Senior,  one  of 
the  best  writers  on  political  economy,  defined  wealth 
in  these  words  :  Under  that  term  we  compre- 
hend all  those  things,  and  those  things  only, 
which  are  transferable,  are  limited  in  supply, 
and  are  directly  or  indirectly  productive  of 
pleasure,  or  preventive  of  pain.  It  is  necessary 
to  understand,  in  the  first  place,  exactly  what  Senior 
meant.  According  to  him,  whatever  is  comprehended 
under  wealth  must  have  three  distinct  qualities,  and  • 
whatever  has  these  three  qualities  must  be  a  part  of 
wealth.  If  these  qualities  are  rightly  chosen,  we  get 
a  correct  definition,  which,  as  explained  in  the  Logic 
Primer  (section  44),  is  a  precise  statement  of  the 
qualities  which  are  just  sufficient  to  make  out  a  class, 
and  to  tell  us  what  things  belong  to  it  and  what  do 
not.  Instead,  however,  of  the  long  phrase  "  directly 
or  indirectly  productive  of  pleasure  or  preventive  of 
pain,"  we  may  substitute  the  single  word  useful,  and 
we  may  then  state  the  definition  in  this  simple  way  : — 

{(i)  transferable. 
(2)  limited  in  supply. 
(3)  useful. 


I4  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

We  still  need  to.  learn  exactly  what  is  meant  by  the 
three  qualities  of  wealth ;  we  must  learn  what  it  is  to 
be  transferable,  limited  in  supply,  and  useful. 

6.  Wealth  is  transferable.  By  being  trans- 
ferable, we  mean  that  a  thing  can  be  passed  over 
(Latin,  trans,  across,  and  fero,  I  carry)  fr6m  one 
person  to  another.  Sometimes  things  can  be  literally 
handed  over,  like  a  watch  or  a  book ;  sometimes  they 
can  be  transferred  by  a  written  deed,  or  by  legal 
possession,  as  in  the  case  of  land  and  houses ;  services, 
also,  can  be  transferred,  as  when  a  footman  hires  him- 
self to  a  master.  Even  a  musician  or  a  preacher 
transfers  his  services,  when  his  auditors  have  the 
benefit  of  hearing  him.  But  there  are  many  desirable 
things  which  cannot  be  transferred  from  one  person  to 
another;  a  rich  man  can  hire  a  footman,  but  he 
cannot  buy  the  footman's  good  health ;  he  can  hire  the 
services  of  the  best  physician,  but  if  these  services 
fail  to  restore  health,  there  is  no  help.  So,  too,  it 
is  impossible  really  to  buy  or  sell  the  love  of  relatives, 
the  esteem  of  friends,  the  happiness  of  a  good  con- 
science. Wealth  may  do  a  great  deal,  but  it  cannot 
really  ensure  those  things  which  are  more  precious 
than  pearls  and  rubies.  Political  economy  does  not 
pretend  to  examine  all  the  causes  of  happiness,  and 
those  moral  riches  which  cannot  be  bought  and  sold 
are  no  part  of  wealth  in  our  present  use  of  the  word. 
The  poor  man  who  has  a  good  conscience,  affectionate 
friends,  and  good  health,  may  really  be  much  happier 
than  the  rich  man,  who  is  deprived  of  such  blessings ; 
but,  on  the  other  hand,  a  man  need  not  lose  his  good  ^ 
conscience,  and  his  other  sources  of  happiness  when 
he  becomes  rich  and  enjoys  all  the  interesting  occupa- 
tions and  amusements  which  wealth  can  give.  Wealth, 
then,  is  far  from  being  the  only  good  thing : 
nevertheless  it  is  good,  because  it  saves  us  from 
too  severe  labour,  from  the  fear  of  actual  want,  and 
enables  us  to  buy  such  pleasant  things  and  services  as 
are  transferable. 


I.  ]  INTRO  D  UCTION.  1 5 

7.  Wealth   is   limited    in    Supply.      In   the 
second  place,  things  cannot  be  called  wealth  unless 
they  be  limited  in  supply  ;  if  we  have  just  as  much 
of  any  substance  as  we  want,  then  we  shall  not  esteem 
a  new  supply  of  it.     Thus  the  air  around  us  is  not 
wealth   in  ordinary  circumstances,  because  we   have 
only  to  open  our  mouths  and  we  get  as  much  as  we 
can  use.     What  air  we  do  actually  breathe  is  exceed- 
ingly useful,  because  it  keeps  us  alive  ;  but  we  usually 
pay  nothing  for  it,  because  there  is  plenty  for  all.     In 
a  diving  bell,  or  a  deep  mine,  however,  air  becomes 
limited  in  supply,  and  then  may  be  considered  a  part 
of  wealth.      When   the    tunnel    under    the    English 
Channel  is   completed,  it  will   be   a   great   question 
how  to  get  air  to  breathe  in  the  middle  of  it.     Even 
in  the  Metropolitan  Railway  tunnel  a  little  more  fresh 
air  would  be  very  valuable. 

On  the  other  hand  diamonds,  though  much  valued, 
are  used  for  few  purposes ;  they  make  beautiful 
ornaments  and  they  serve  to  cut  glass  or  to  bore 
rocks.  Their  high  value  chiefly  arises  from  the  fact 
that  they  are  scarce.  Of  course  scarcity  alone  will 
not  create  value.  There  are  many  scarce  metals,  or 
minerals,  of  which  only  a  few  little  bits  have  ever  yet 
been  seen;  but  such  substances  are  not  valuable, 
unless  some  special  use  has  been  found  for  them. 
The  metal  iridium  is  sold  at  a  very  high  price  because 
it  is  wanted  for  making  the  tips  of  gold  pens,  and  can 
be  got  only  in  small  quantities. 

8.  Wealth  is  useful.     In  the  third  place,  we 
can  easily  see  that  everything  which  forms  a  part  of~ 
wealth  must  be  useful,  or  have  utility,  that  is,  it  must 
serve  some  purpose,  or  be  agreeable  and  desirable  in. 
some  way  or  other.     Senior  said  correctly  that  useful 
things  are  those  which  directly  or  indirectly 
produce    pleasure    or   prevent   pain.      A  well 
tuned  and  well  played  musical  instrument  produces 
pleasure ;  a  dose  of  medicine  prevents  pain  to  one  who 
is  in  need  of  it.     But  it  is  often  impossible  to  decide 


1 6  PRIMER  OF  POLITICAl^ECONOMY.          [CH. 

whether  things  give  more  pleasure  or  prevent  more 
pain ;  dinner  saves  us  from  the  pain  of  hunger  and 
gives  us  the  pleasure  of  eating  good  things.  There  is 
utility  so  far  as  pleasure  is  increased  and  pain  de- 
creased ;  nor  does  it  matter,  as  far  as  political  economy 
is  concerned,  what  is  the  nature  of  the  pleasure. 

Then,  again,  we  need  not  be  particular  as  to  whether 
things  directly  produce  pleasure,  like  the  clothes 
we  wear,  or  whether  they  indirectly  do  so,  as  in  the 
cases  of  the  machines  employed  to  make  the  clothes. 
Things  are  indirectly  useful  when,  like  tools,  machines, 
materials,  &c.,  they  are  only  wanted  to  make  other 
things,  which  shall  be  actually  consumed  and  enjoyed 
by  some  person.  The  carriage  in  which  a  person 
takes  a  pleasant  drive  is  directly  useful ;  the  baker's 
cart  which  brings  him  food  is  indirectly  useful. 
But  sometimes  we  can  hardly  distinguish.  Shall  we  say 
that  the  meat  put  into  the  mouth  is  directly,  but  the 
fork  which  puts  it  in  is  indirectly,  useful  ? 

9.  Commodity.  We  now  know  exactly  what  is 
wealth ;  but  instead  of  speaking  continually  of  wealth, 
it  will  often  be  convenient  to  speak  of  commodities, 
or  goods.  A  commodity  is  any  portion  of 
wealth— anything,  therefore,  which  is  useful,  and 
transferable,  and  limited  in  supply.  Wool,  cotton, 
iron,  tea,  books,  boots,  pianos,  &c.,  are  all  commo- 
dities in  certain  circumstances,  but  not  in  all  circum- 
rstances.  Wool  on  a  stray  sheep  lost  in  the  mountains 
is  not  a  commodity,  nor  iron  in  a  mine  which  cannot 
be  worked.  A  commodity,  in  short,  is  any- 
thing which  is  really  useful  and  wanted,  so 
that  people  will  buy  or  sell  it.  But,  instead 
of  the  long  word  commodity,  I  shall  often  use  the 
shorter  word  goods,  and  the  reader  should  remem- 
,ber  that 

goods  =  commodities  z  portion  of  wealth. 


IL]  UTILITY.  17 

CHAPTER  II. 
UTILITY. 

10.  Our  Wants  are  various.  After  a  little 
reflection,  we  shall  see  that  we  generally  want  but 
little  of  any  one  kind  of  commodity,  and  prefer  to 
have  a  portion  of  one  kind  and  a  portion  of  another 
kind.  Nobody  likes  to  make  his  dinner  off  potatoes 
only,  or  bread  only,  or  even  beef  only ;  he  prefers  to 
have  some  beef,  some  bread,  some  potatoes,  besides, 
perhaps,  beer,  pudding,  &c.  Similarly,  a  man  would 
not  care  to  have  many  suits  of  clothes  all  alike ;  he 
may  wish  to  have  several  suits,  no  doubt,  but  then 
some  should  be  warmer,  others  thinner;  some  for 
evening  dress,  others  for  travelling,  and  so  on.  A 
library  all  made  of  copies  of  the  same  book  would  be 
absurd;  to  keep  several  exact  duplicates  of  any 
work  would  be  generally  useless.  A  collector  of  en- 
gravings would  not  care  to  have  many  identical  copies 
of  the  same  engraving.  In  all  these,  and  many  other 
cases,  we  learn  that  human  wants  tend  towards  y 
variety  ;  each  separate  want  is  soon  satis-^ 
fied,  or  made  full  (Latin,  satis,  enough,  and 
facer e,  to  make),  and  then  some  other  want  begins 
to  be  felt.  This  was  called  by  Senior  the  law  or 
variety,  and  it  is  the  most  important  law  in  the 
whole  of  political  economy. 

It  is  easy  to  see,  too,  that  there  is  a  natural  order 
in  which  our  wants  follow  each  other  as  regards  im- 
portance ;  we  must  have  food  to  eat,  and  if  we  can- 
not get  anything  else  we  are  glad  to  get  bread;  next 
we  want  meat,  vegetables,  fruit,  and  other  delicacies. 
Clothing  is  not  on  the  whole  as  necessary  as  food; 
but,  when  a  man  has  plenty  to  eat,  he  begins  to  think 
of  dressing  himself  well.  Next  comes  the  question  of 
a  house  to  live  in;  a  mere  cabin  is  better  than 
nothing,  but  the  richer  a  man  is  the  larger  the  house 


1 8           PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

he  likes  to  have.  When  he  has  got  a  good  house  he 
wants  to  fill  it  with  furniture,  books,  pictures,  musical 
instruments,  articles  of  vertu,  and  so  forth.  Thus  we 

(can  lay  down  very  roughly  a  law  of  succession 
of  wants,  somewhat  in  this  order :  air,  food,  cloth- 
ing, lodging,  literature,  articles  of  adornment  and 
amusement. 

It  is  very  important  to  observe  that  there  is  no  end 
nor  limit  to  the  number  of  various  things  which  a  rich 
man  will  like  to  have,  if  he  can  get  them.  He  who 
has  got  one  good  house  begins  to  wish  for  another : 
he  likes  to  have  one  house  in  town,  another  in  the 
country.  Some  dukes  and  other  very  rich  people 
have  four,  five,  or  more  houses.  From  these  obser- 
vations we  learn  that  there  can  never  be,  among 
civilised  nations,  so  much  wealth,  that  people 
would  cease  to  wish  for  any  more.  However  much 
we  manage  to  produce,  there  are  still  many  other 
things  which  we  want  to  acquire.  When  people  are 
well  fed,  they  begin  to  want  good  clothing;  when 
they  are  well  clothed,  they  want  good  houses,  and 
furniture,  and  objects  of  art.  If,  then,  too  much 
f  wealth  were  ever  produced,  it  would  be  too  much 
•'\  of  one  sort,  not  too  much  of  all  sorts. 
^Farmers  might  be  ruined  if  they  grew  so  much  corn 
that  nobody  could  eat  it  all ;  then,  instead  of  produc- 
ing so  much  corn,  they  ought  to  produce  more  beef 
and  milk.  Thus  there  is  no  fear  that,  by  machinery 
or  other  improvements,  things  will  be  made  so  plen- 
tifully that  workmen  would  be  thrown  out  of  employ- 
ment, and  not  wanted  any  more.  If  men  were  not 
required  at  one  trade,  they  would  only  need  to  learn 
a  new  trade. 

ii.  When  things  are  useful.  The  chief  ques- 
tion to  consider,  then,  is  when  things  are  useful  and 
when  they  are  not.  This  entirely  depends  upon 
whether  we  want  them  or  not.  Most  things 
about  us,  the  air,  rain  water,  stones,  soil,  &c.,  are  not 
wealth,  because  we  do  not  want  them,  or  want  so  little 


II.]  UTILITY.  19 

that  we  can  readily  get  what  we  need.  Let  us  consider 
carefully  whether  we  can  say  that  water  is  useful, 
or  in  what  sense  we  may  say  so.  It  is  common  to 
hear  people  say  that  water  is  the  most  useful  substance 
in  the  world,  and  so  it  is — in  the  right  place,  and  at  the 
right  time.  But  if  water  is  too  plentiful  and  flows 
into  your  cellars,  it  is  not  useful  there ;  if  it  soaks 
through  the  walls  and  produces  rheumatism,  it  is 
hurtful,  not  useful.  If  a  man  wanting  pure  good  water, 
digs  a  well  and  the  water  comes,  it  is  useful.  But 
if,  in  digging  a  coal  pit,  water  rushes  in  and  prevents 
the  miners  reaching  the  coal  seam,  it  is  clear  that  the 
water  is  the  opposite  of  useful.  In  some  countries 
rain  comes  very  irregularly  and  uncertainly.  In  Aus- 
tralia the  droughts  last  for  one  or  two  or  even  three 
years,  and  in  the  interior  of  the  continent  the  rivers 
sometimes  dry  up  altogether.  The  dirtiest  pools 
then  become  very  valuable'  for  keeping  the  flocks  of 
sheep  alive.  In  New  South  Wales  water  has  been  sold 
for  three  shillings  a  bucketful.  When  a  drought  breaks 
up,  sudden  floods  come  down  the  rivers,  destroying 
the  dams  and  bridges,  sweeping  away  houses, 
and  often  drowning  men  and  animals.  It  is  quite 
plain  that  we  cannot  say  water  is  always  useful ;  it  is 
often  so  hurtful  as  to  ruin  and  drown  people. 
All  that  we  can  really  say  is  that  water  is 
useful  when  and  where  we  want  it,  ancj/ 
in  such  quantity  as  we  want,  and  not 
otherwise.  We  must  not  say  that  all  water  is 
useful,  but  only  that  such  water  is  useful  as  we  can 
actually  use. 

It  is  now  easy  to  see  why  things,  in  order  to  be 
wealth,  must  be  limited  in  supply ;  for  we  never 
want  an  unlimited  quantity  of  anything.  A  man  can- 
not drink  more  than  two  or  three  quarts  of  water  in 
the  day,  nor  eat  more  than  a  few  pounds  of  food. 
Thus  we  can  understand  why  in  South  America,  where 
there  are  great  herds  of  cattle,  the  best  beef  is  not 
wealth,  namely,  because  there  is  so  much  that  there 


20          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

are  not  people  enough  to  eat  it.  The  beef  which  is 
eaten  there  is  just  as  useful  in  nourishing  people  as 
beef  eaten  in  England,  but  it  is  not  so  valuable  be- 
cause there  is  plenty  of  beef  to  spare,  that  is,  plenty 
of  beef  not  wanted  by  the  people. 

12.  What  we  must  aim  at.     Now  we  can  see 
precisely  what  it  is  that  we  have  to  learn  in  political 
economy.      It   is   how   to    supply   our   various 
wants  as  fully  as  possibleT    To  do  this  we  must, 
first  of  all,  ascertain  what  things  are  wanted.     There 
is  no  use  making   things  unless,  when  made,  they 
are  useful,    and   the   quantities   of  things    must   be 
proportioned  to  what  are  wanted.     The  cabinetmaker 
must  not  make  a  great  many  tables,  and  few  chairs ; 
he  must  make  some  tables  and  more  chairs.     Similarly, 
every  kind  of  commodity  must  be  supplied  when  it  is 
most  wanted  ;   and  nothing  must   be   over-supplied, 
that  is  manufactured  in  such  large  quantities  that  it 

-would  have  been  better  to  spend  the  labour  in  manu- 
facturing other  things. 

Secondly,  we  must  always  try  to  produce  things 
with  the  least  possible  labour;  for  labour  is  painful 
exertion,  and  we  wish  to  undergo  as  little  pain  and 
trouble  as  we  can.  Thus,  as  Professor  Hearn,  of 

xthe  University  of  Melbourne,  well  described  it,  politi- 
cal economy  is  the  science  of  efforts  to 
satisfy  wants ;  it  teaches  us  how  to  find  the 
shortest  way  to  what  we  wish  for.  The  object  which 
we  aim  at  is  to  obtain  the  most  riches  at  the 
cost  of  the  least  labour. 

13.  When  to  consume  wealth.     To  consume 
a  commodity  is  to  destroy  its  utility,  as  when  coal  is 
burnt,  or  bread   eaten,  or  a  jug  broken,  or  a  piano 
worn  out.     Things  lose  their  utility  in  various  ways, 
as  when  they  go  bad,  like  meat  and  fish ;  when  the 
fashion  changes,  as  with  ladies'  attire ;  or  when  they 
merely  grow  old,  as  in  the  case  of  an  almanack,  or 
a  directory.     Again,  houses  fall  into  bad  repair  ;  ricks 
of  corn  may  be  burnt  down  •  ships  may  founder.     In 


ii.]  UTILITY.  21 

all  these  cases  utility  is  destroyed,  slowly  or  quickly, 
and  the  commodities  may  be  said  to  be  consumed. 
It  is  obvious  that  we  must  use  things  while  they  are 
fit  to  be  used,  if  we  are  to  use  them  at  all. 

It  is  evident,  too,  that  we  ought  to  try  to  get  the 
utmost  possible  use  out  of  things  which  we  are  happy 
enough  to  possess.  If  an  object  is  not  injured  nor 
destroyed  by  use,  as  in  the  case  of  reading  a  book,  or 
looking  at  a  picture,  then  the  more  often  we  use  it  the 
greater  is  the  utility.  Such  things  become  more  useful 
if  they  are  passed  on  from  one  person  to  another,  like 
books  in  a  circulating  library.  In  this  case  there 
arises  what  we  may  call  the  multiplication  of 
utility.  Public  libraries,  museums,  picture  galleries 
and  like  institutions  all  multiply  utility,  and  the  cost 
of  such  institutions  is  little  or  nothing  compared  with 
their  usefulness. 

When  a  commodity  is  destroyed  at  once  by  use,  as 
in  the  case  of  food,  it  is  obvious  thatjonly  one  person 
can  use  the  sajnejDortion  of  commodity.  Our  object 
must  then  be  to  consunfe^TFwEerT  it  is  most  useful. 
If  a  man  lost  in  the  bush  find  himself  with  a  short 
supply  of  food,  it  would  be  foolish  of  him  to  eat  it  all 
up  at  once,  when  he  might  starve  for  several  days 
afterwards.  He  should  spread  out  his  supply,  so  as 
to  eat  each  bit  of  food  when  it  will  support  his  . 
strength  the  most.  So  we  ought  to  do  with  the  earnings 
of  a  life  time.  The  working  man  should  not  spend 
all  his  wages  when  trade  is  brisk,  because  he  will 
want  some  of  it  much  more  when  trade  becomes  slack, 
and  he  is  out  of  employment.  Similarly,  that  which 
is  spent  in  early  life  upon  mere  luxuries  and  frivolities, 
might  be  much  more  useful  in  old  age,  when  even 
necessaries  and  ordinary  comforts  may  be  difficult  to 
obtain.  All  wealth  is  produced  in  order  that 
it  may  be  consumed,  but  then  it  must  be 
consumed  when  it  best  fulfils  its  purpose, 
that  is,  when  it  is  most  useful. 

14,  The  Fallacy  of  Consumption.      It  is  not 


22          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

uncommon  to  hear  people  say  that  they  ought  to 
spend  money  freely  in  order  to  encourage  trade.  If 
every  person  were  to  save  his  money  instead  of  spend- 
ing it,  trade,  they  think,  would  languish  and  workmen 
would  be  out  of  employment.  Tradespeople  favour 
these  notions,  because  it  is  obvious  that,  the  more  a 
milliner  or  draper  can  persuade  his  customer  to  buy, 
the  more  profit  he  makes  thereby.  The  customers, 
too,  are  quite  inclined  to  think  the  argument  a  good 
one,  because  they  enjoy  buying  new  dresses,  and  other 
pleasant  things.  Nevertheless  the  argument  is  a 
bad  fallacy. 

The  fact  is,  that  a  person  who  has  riches  cannot 
help  employing  labour  of  some  kind  or  other.  If  he 
saves  up  his  money  he  probably  puts  it  into  a  bank ; 
but  the  banker  does  not  keep  it  idle.  The  banker 
lends  it  out  again  to  merchants,  manufacturers  and 
builders,  who  use  it  to  increase  their  business  and 
employ  more  hands.  If  he  buy  railway  shares  or 
government  funds,  those  who  receive  the  money  put 
it  to  some  other  profitable  use.  If  the  rich  man 
actually  hoards  up  his  money  in  the  form  of  gold 
or  silver,  he  gets  no  advantage  from  it,  but  he  creates 
so  much  more  demand  for  gold  or  silver.  If  many 
rich  people  were  to  take  to  hoarding  up  gold,  the 
result  would  be  to  make  gold  mining  more  profitable, 
and  there  would  be  so  many  more  gold  miners,  instead 
of  railway  navvies,  or  other  workmen. 

We  see  then  that,  when  a  rich  person  decides  how 
to  spend  his  money  he  is  deciding  not  how  many  more 
workpeople  shall  be  set  to  work,  but  what  kind  of  work 
they  shall  do.  If  he  decide  to  give  a  grand  fancy  ball, 
then  in  the  end  there  will  be  so  many  more  milliners, 
costumiers,  lacemakers,  confectioners,  &c.  A  single 
ball  indeed  will  have  no  great  effect ;  but,  if  many 
people  were  to  do  the  same,  there  would  soon  be  more 
tradespeople  attracted  to  these  trades.  If,  on  the 
other  hand,  rich  people  invest  their  money  in  a 
new  railway,  there  will  be  so  many  more  surveyors, 


IL]  UTILITY.  23 

engineers,  foremen,  navvies,  iron  puddlers,  iron  rollers, 
engine  mechanics,  carriage  builders,  £c. 

The  question  really  comes  to  this,  whether  people 
are  made  happier  by  more  fancy  balls,  or  by  more 
railways.  A  fancy  ball  creates  amusement  at  the  time, 
but  it  costs  a  great  deal  of  money,  especially  to  the 
guests  who  buy  expensive  costumes.  When  it  is  over 
there  is  no  permanent  result,  and  no  one  is  much  the 
better  for  it.  "The  railway,  on  the  other  hand,  is  no 
immediate  cause  of  pleasure,  but  it  cheapens  goods  by 
enabling  them  to  be  carried  more  easily  :  it  allows 
people  to  live  in  the  country,  instead  of  the  crowded 
town,  or  it  carries  them  on  pleasant  and  wholesome 
excursions. 

We  see,  then,  that  it  is  simple  folly  to  approve  of 
consumption  for  its  own  sake,  or  because  it  benefits 
trade.      In  spending  our  wealth  we  ought  to  thinli 
solely  of  the  advantage  which  people  get  out  of  that  J 
spending. 

15.  The  Fallacy  of  Non-consumption. 
Some  people  fall  into  the  opposite  fallacy  of  thinking 
that  all  spending  is  an  evil.  The  best  thing  to  do 
with  wealth  is  to  keep  it  and  let  it  grow  by  interest,  or 
even  to  neglect  the  interest  and  keep  the  gold  itself. 
Thus  they  become  what  we  call  misers,  and  there  are 
always  a  certain  number  of  people,  who  deprive  them- 
selves of  the  ordinary  pleasures  of  life,  in  order  that 
they  may  have  the  pleasure  of  feeling  rich.  Now 
these  kind  of  people  do  no  positive  harm  to  their 
fellow-men ;  on  the  contrary  they  increase  the  wealth 
of  the  country,  and  some  one  or  other  will  sooner  or 
later  benefit  by  it.  Moreover,  if  they  put  their  wealth 
into  banks  and  other  good  investments,  they  do  great 
service  in  increasing  the  capital  of  the  nation,  and  thus 
enabling  so  many  more  factories,  docks,  railways,  and 
other  important  works  to  be  constructed.  Most  people 
are  so  fond  of  spending  their  money  on  passing  amuse- 
ments, entertainments,  eating  and  drinking,  and  fine 
dressing,  that  it  is  a  distinct  advantage  to  have  other 


24          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

people  who  will  put  their  wealth  into  a  more  perman- 
ently useful  form. 

Nevertheless,  there  could  be  no  use  in  abstaining 
from  all  enjoyment  in  order  that  we  might  lay  up  a 
store  of  wealth.  Things  are  not  wealth  unless  they  are 
useful  and  pleasant  to  us.  If  everybody  invested  his 
savings  in  railway  shares,  we  should  have  so  many 
railways  that  they  could  not  be  all  used,  and  they 
would  become  rather  a  nuisance  than  a  benefit. 
Similarly,  there  could  be  no  good  in  building  docks 
unless  there  were  ships  to  load  in  them,  nor  ships  unless 
there  were  goods  or  passengers  to  convey.  It  would 
be  equally  absurd  to  make  cotton  mills  if  there  were 
already  enough  to  manufacture  as  much  cotton  goods 
as  people  could  consume. 

Thus  we  come  to  see  that  wealth  must  be  fitted  for 
use  and  consumption  in  some  way  or  other.  What  we 
have  to  do  is  to  endeavour  to  spend  our  means  so  as 
tojjet  the  greatest  real  happiness  for  ourselves,  our 
relatives",  friends,  and  all  other  people  whom  we  ought 
to  consider. 

CHAPTER  III. 
PRODUCTION   OF  WEALTH.      . 

16.  The  Requisites  of  Production.  The  first 
thing  in  industry,  as  we  now  see,  is  to  decide  what 
we  want ;  the  next  thing  is  to  get  it,  or  make  it,  or,  as 
we  shall  say,  produce  it,  and  we  ought  obviously  to 
produce  it  with  the  least  possible  labour.  To  learn 
how  this  may  be  done,  we  must  inquire  what  is 
needful  for  the  production  of  wealth.  There  are,  as  is 
commonly  and  correctly  said,  three  requisites  of 
production ;  before  we  can,  in  the  present  state  of 
society,  undertake  to  produce  wealth,  we  must  have  the 
three  following  things  : — 

(1)  Land, 

(2)  Labour, 

(3)  Capital. 


in.]  PRODUCTION  OF  WEALTH.  25 

In  production  we  bring  these  things  together;  we 
apply  labour  to  the  land,  and  we  employ  the  capital  in 
assisting  the  labourer  with  tools,  and  feeding  him 
while  he  is  engaged  on  the  work.  We  must  now 
proceed  to  consider  each  of  the  three  requisites  in 
succession. 

17.  Land  or  Source  of  Materials.  The  word 
production  is  a  very  good  one ;  it  means  drawing 
forth  (Latin,  pro,  before,  and  ducere,  to  draw),  and 
it  thus  exactly  expresses  the  fact  that,  when  we  want 
to  create  wealth,  we  have  to  go  to  some  piece  of  land, 
or  to  some  lake,  river,  or  sea,  and  draw  forth  the 
substance  which  is  to  be  made  into  wealth.  It  does 
not  matter  whether  the  material  comes  from  the 
surface  of  the  earth,  or  from  mines  and  quarries  sunk 
into  the  earth,  or  from  seas  and  oceans.  Our  food 
mostly  grows  upon  the  land,  as  in  the  case  of  corn, 
potatoes,  cattle,  game,  &c. ;  our  clothes  are  chiefly 
made  of  cotton,  flax,  wool,  skins,  raised  in  like  manner. 
Minerals  and  metals  are  obtained  by  sinking  pits  and 
mines  into  the  crust  of  the  earth.  Rivers,  lakes,  seas, 
and  oceans  are  no  slight  source  of  wealth  :  they  yield 
food,  oil,  whalebone,  sealskin,  £c.  We  cannot  manu- 
facture any  goods  unless  we  have  some  matter  to  work 
upon ;  to  make  a  pin  we  must  get  copper,  zinc,  and 
tin  out  of  mines ;  a  ribbon  requires  the  silk  and  the 
dye  materials ;  everything  that  we  touch,  and  use,  and 
eat,  and  drink,  contains  substance,  so  that  we  must 
always  begin  by  finding  a  supply  of  the  right  sort  of 
materials. 

Commonly,  too,  we  want  something  more  than 
matter;  we  want  force  which  shall  help  us  to  carry 
and  work  the  raw  material.  People  naturally  wish  to 
avoid  tiring  themselves  by  labouring  with  their  own 
arms  and  legs,  and  so  they  make  windmills  to  grind 
corn,  ships  to  carry  goods,  steam-engines  to  pump 
water  and  to  do  all  sorts  of  hard  work.  From  the 
earth,  or,  as  we  say,  from  Nature,  we  obtain  both  the 
materials  of  wealth  and  the  force  which  helps  us  to 


26  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

turn  the  materials  into  wealth.  Whatever  thus  fur- 
nishes us  with  the  first  requisite  of  production  is  called 
a  natural  agent,  that  is,  something  which  acts  for 
us  and  assists  us  (Latin,  agens,  acting).  Among 
natural  agents  land  is  by  far  the  most  important, 
because,  when  supplied  with  abundant  sunlight  and 
moisture,  it  may  be  cultivated  and  made  to  yield  all 
kinds  of  crops.  Accordingly,  economists  often  speak 
of  land,  when  their  remarks  would  really  apply  as  well 
to  rocks  and  rivers.  Three-quarters  of  the  whole 
surface  of  the  globe  is  covered  with  seas ;  but  this 
vast  extent  of  salt  water  furnishes  little  wealth,  except 
whales,  seals,  sea-weed,  and  a  few  other  kinds  of 
animals  and  plants.  Hence,  when  we  speak  of  land, 
we  really  mean  any  source  of  materials — any  natural 
agent,  and  we  may  say  that 
land  =  source  of  materials  =  natural  agent. 

1 8.  Labour.  Nothing  is  more  plain,  however, 
than  that  natural  agents  alone  do  not  make  wealth. 
A  man  would  perish  in  the  most  fertile  spot  if  he  did 
not  take  some  trouble  in  appropriating  the  things 
around  him.  Fruit  growing  wild  on  the  trees  must  be 
plucked  before  it  becomes  wealth,  and  wild  game 
must  be  caught  before  it  can  be  cooked  and  eaten. 
We  must  spend  a  great  deal  of  labour  if  we  wish  to 
have  comfortable  clothes  and  houses  and  regular 
supplies  of  food;  the  proper  sorts  of  materials  must 
be  gradually  got  together,  and  shaped  and  manufac- 
tured. Thus  the  amount  of  wealth  which  people  can 
obtain  depends  far  more  upon  their  activity  and  skill 
in  labouring  than  upon  the  abundance  of  materials 
around  them. 

As  already  remarked,  North  America  is  a  very  rich 
land,  containing  plenty  of  fine  soil,  seams  of  coal, 
veins  of  metal,  rivers  full  of  fish,  and  forests  of  fine 
timber,  everything,  in  short,  needed  in  the  way  of 
materials ;  yet  the  American  Indians  lived  in  this  land 
for  thousands  of  years  in  great  poverty,  because  they 
had  not  the  knowledge  and  perseverance  to  enable 


in.]  PRODUCTION  OF  WEALTH.  27 

them  to  labour  properly  and  produce  wealth  out  of 
natural  agents.     Thus  we  see  clearly  that  skilful  and 
intelligent  and  regular  labour  is  requisite  to  the  pro-  - 
duction  of  wealth. 

19.  Capital.  In  order  that  we  may  produce  much 
wealth,  we  require  something  further,  namely,  the 
capital,  which  supports  labourers  while  they  are 
engaged  in  their  work.  Men  must  have  food  once  a 
day,  not  to  say  two  or  three  times ;  if  then  they  have 
no  stock  of  food  on  hand,  they  must  go  at  once  and 
get  it  in  the  best  way  they  can,  for  fear  of  starving. 
They  must  grub  up  roots,  or  gather  grass  seeds,  or 
catch  wild  animals — if  they  can.  When  working  in 
this  way,  they  usually  spend  a  great  deal  of  labour  for 
very  little  result;  Australian  natives  sometimes  have 
to  cut  down  a  large  tree  with  stone  axes,  which  is 
very  hard  work,  in  order  to  catch  an  opossum  or  two. 
Men  who  live  in  this  way  from  hand  to  mouth  have 
no  time  nor  strength  sto  make  arrangements  so  as  to 
get  food  and  clothes  in  the  easiest  way.  It  requires 
much  labour  to  plough  the  ground,  to  harrow  it,  and 
sow  it  with  corn,  besides  fencing  it  in ;  when  all  this 
is  done  it  is  requisite  to  wait  six  months  before  the 
crop  can  be  gathered.  Certainly,  the  amount  of  food 
thus  obtained  is  large  compared  with  the  labour :  but 
wild  Indians  and  other  ignorant  tribes  of  men  cannot 
wait  while  the  corn  is  growing ;  the  poor  Australian 
natives  have  to  gather  grass  seeds  or  find  worms  and 
opossums  every  day. 

There  is  a  good  Japanese  maxim  which  says,  "  Dig 
a  well  before  you  are  thirsty,"  and  it  is  evidently  very 
desirable  to  do  so.     But  you  must  have  capital  to  live 
upon  while  you  are  digging  the  well.     In  the  same 
way,   almost  every  mode  of  getting  wealth  without 
j  extreme  labour  requires  that  we  shall  have  a  stock  ofJU 
food  to  subsist  upon  while  we  are  working  and  wait-/ 
ing,  and  this  stock  is    called   capital.     In  the 
absence  of  capital  people  find  themselves  continually 
in  difficulties,  and  in  danger  of  starvation.     In  the 


28           PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

first  of  her  tales  on  political  economy,  called  "Life 
in  the  Wilds/'  Miss  Martineau  has  beautifully  described 
the  position  of  settlers  at  the  Cape  of  Good  Hope, 
who  are  imagined  to  have  been  attacked  by  Bushmen 
and  robbed  of  their  stock  of  capital.  She  shows  us 
how  difficult  it  is  to  get  any  food  or  to  do  any  useful 
work,  because  something  else  is  wanted  beforehand — 
some  tool,  or  material,  or  at  any  rate  time  to  make  it. 
But  there  is  no  time  to  make  anything,  because  all 
attention  has  to  be  given  to  finding  shelter  for  the 
night,  and  something  for  supper.  Everybody  who 
wishes  to  understand  the  necessity  for  capital,  and  the 
way  capital  serves  us,  should  read  this  tale  of  Miss 
Martineau,  and  then  go  on  to  her  other  tales  about 
Political  Economy 

We  can  hardly  say  that  capital  is  as  requisite  to 
production  as  land  and  labour,  for  the  reason  that 
capital  must  have  been  the  produce  of  land  and 
labour.  There  must  always,  indeed,  be  a  little  capital 
in  possession,  even  though  it  be  only  the  last  meal 
in  the  stomach,  before  we  can  produce  more.  But 
there  is  no  good  attempting  to  say  exactly  how  capital 
began  to  be  collected,  because  it  began  in  the 
childhood  of  the  world,  when  men  and  women  lived 
more  like  wild  animals  than  as  we  live  now..  Certain  it 
is  that  we  cannot  have  loaves  of  bread,  and  knives  and 
forks,  and  keep  ourselves  warm  with  clothes  and  brick 
houses,  unless  we  have  a  stock  of  capital  to  live  upon 
while  we  are  making  all  these  things.  Capital  is 
requisite,  then,  not  so  much  that  we  shall 
labour,  but  that  we  shall  labour  economically 
and  with  great  success.  We  may  call  it  a 
secondary  requisite,  and  it  would  be  best  to  state 
the  requisites  of  production  in  this  way — 

Primary  requisites {  »«£ 

Secondary  requisite capital. 

20.  How  to  make  Labour  most  Productive. 

The  great  object  must  be  to  make  labour  as  productive 


in.]  PRODUCTION  OF  WEALTH.  29 

as  possible,  that  is,  to  get  as  much  wealth  as  we  can 
with  a  reasonable  amount  of  labour.  In  order  to  do 
this  we  must  take  care  to  labour  in  the  most  favourable 
way,  and  there  is  no  difficulty  in  seeing  that  we  ought 
to  labour 

(1)  At  the  best  time ; 

(2)  At  the  best  place  ; 

(3)  In  the  best  manner. 

21.  Work  at  the  best  Time.     Of  course  we 
ought  to  do  things  when  it  is  most  easy  to  do  them, 
and  when  we  are  likely  to  get  most  produce  for  our 
labour.     The  angler  goes  to  the  river  in  the  early 
morning  or  the  evening,  when  the  fish  will  bite ;  the 
farmer  makes  hay  while  the  sun  shines  ;  the  miller 
grinds  corn  when  the  breeze  is  fresh,  or  the  stream 
full ;  and  the  skipper  starts  when  wind  and  tide  are  in 
his  favour.     By  long  experience  farmers  have  found 
out  the  best  time  of  year  for  doing  every  kind  of  work: 
seed  is  sown  in  autumn  or  spring ;  manure  is  carried 
in  winter  when  the   ground   is   frozen;  hedges   and 
ditches  are  mended  when  there  is  nothing  else  to  do, 

•  ai}d  the  harvest  is  gathered  just  when  it  is  ripe,  and 
the  weather  is  fine.  Norwegian  peasants  work  hard 
all  day  in  July  and  August  to  cut  as  much  grass, 
and  make  as  much  hay  as  possible.  They  never  think 
of  timber  then,  because  they  know  that  there  will  be 
plenty  of  time  during  the  long  winter  to  cut  down 
trees  ;  and  when  the  snow  fills  up  all  the  hollows  in  the 
mountain  side,  they  can  easily  drag  the  trees  down  to 
the  rivers,  which  rise  high  with  floods  after  the  melting 
of  the  snow,  and  carry  the  logs  away,  without  further 
labour,  to  the  towns  and  ports.  It  is  a  good  rule  not 
to  do  to-day  what  we  can  probably  do  more  easily  to- 
morrow :  but  it  is  a  still  better  rule  not  to  put  off  till 
to-morrow  what  we  can  do  more  easily  to-day.  In 
order,  however,  that  we  may  be  able  to  wait  and  to  do 
each  kind  of  work  at  the  best  time,  we  must  have 
enough  capital  to  live  upon  in  the  meantime. 

22.  Work    at    the    Best    Place.     Again,    we 


30           PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

should  carry  on  every  kind  of  work  at  the  place  best 
suited  for  it,  that  we  can  get  possession  of.  In  many 
cases  this  is  so  obvious  that  the  remark  seems  absurd. 
Does  any  one  plant  fruit  trees  on  the  sea  sands,  or  sow 
corn  among  rocks  ?  Of  course  not,  because  there 
would  be  no  result.  No  one  is  so  foolish  as  to  spend 
his  labour  in  a  place  where  it  would  be  wasted  alto- 
gether. In  other  cases  it  is  a  question  of  degree; 
there  may  be  some  produce  here,  but  there  would  be 
more  produce  there.  In  the  south  of  England  vines 
can  be  made  to  grow  in  the  open  air,  and,  in  former 
days,  wine  used  to  be  made  from  grapes  grown  in  Eng- 
land. But  vines  grow  much  better  on  the  sunny  hills 
of  France,  Spain,  and  Germany,  and  the  wine  which 
can  there  be  made  with  the  same  labour  is  far  more 
plentiful  and  immensely  better  in  quality.  Those, 
then,  who  want  to  make  wine  had  much  better  remove 
to  the  continent,  or,  still  better,  let  the  French, 
Spaniards,  and  Germans  produce  wine  for  us.  In 
England  we  have  good  soil  and  a  moist  climate  fitted 
for  growing  grass,  and  the  best  thing  which  our  farmers 
can  do  is  to  raise  cattle  and  produce  plenty  of  milk, 
butter,  and  cheese. 

In  order  that  the  world  may  grow  as  rich  as  pos- 
sible, each  country  should  give  its  attention  to  pro- 
ducing what  it  can  produce  most  easily  in  its  present 
:ircumstances,  getting  other  things  in  exchange  by 
breign  trade.  The  United  States  can  raise  endless] 
quantities  of  cotton,  corn,  bacon,  meat,  fruit,  petroleum, 
besides  plenty  of  gold,  silver,  copper,  iron,  &c.  Aus- 
tralia, New  Zealand,  and  South  Africa  will  furnish 
much  wool,  hides,  sugar,  preserved  meats,  besides 
gold,  copper,  and  diamonds.  Tropical  Africa  has 
palm  oil,  ivory,  teak  wood,  gum,  &c.  South  America 
abounds  in  cattle  from  which  we  get  tallow,  hides, 
bones,  horns,  essence  of  beef,  &c.  China  supplies  us 
with  vast  quantities  of  tea,  in  addition  to  silk,  ginger, 
and  many  minor  commodities.  India  sends  cotton, 
indigo,  jute,  rice,  seeds,  sugar,  spices,  and  all  kinds  of 


III.]  PRODUCTION  OF  WEALTH.  3! 

other  products.  Every  part  of  the  world  has  some 
commodities  which  it  can  produce  better  than  other 
countries,  and  if  men  and  governments  were  wise, 
they  would  allow  trade  to  be  as  free  as  possible,  in 
order  that  each  thing  shall  be  produced  where  it  costs 
the  least  labour  to  produce  it. 

23.  Work  in  the  Best  Manner.    Whatever  the 
kind  of  industry  carried  on  in  a  place,  we  ought  to 
take  care,  thirdly,  that  each  labourer  works  in  the 
best  manner,  so  as  not  to  waste  his  labour  or  to  make 
mistakes.     There  are  many  different  ways  of  setting 
about  the  same  work,  and,   in   order   that   he   may 
choose  the  best,  the  labourer  must  be  intelligent  and 
skilful,  or  else  he  must  be  directed  by  some  person 
who  has  knowledge  and  skill.     Moreover,  there  must 
be,  as  we  shall  see,  great  division  of  labour,  so  that 
each  man  shall  do  the  kind  of  work  he  can  do  best. 
We  need,  then — 

(1)  Science, 

(2)  Division  of  labour. 

24.  The  Need  of  Science.      In  order  that  he 
may  employ  his  labour  to  the  best  advantage,  it  is 
requisite   that   the   labourer   should    be   not   merely 
skilful,  that  is,  clever,  and  practised  in  handiwork,  but 
that  he  should  also  be  guided  by  a  scientific  knowledge 
of  the  things  with  which  he  is  dealing.    Knowledge  of 
nature  consists,  to  a  great  extent,  in  understanding  the 
causes  of  things,  that  is,  in  knowing  what  things 
must  be  put  together  in  order  that  certain  other  things 
shall  be  produced.     Thus  the  steam-engine  is  due  to 
the  discovery  that  if  heat  be  applied  to  water,  the 
result  is  steam  expanding  with  much  force,  so  that  a 
firebox,   coal,   boiler,  and  water  are  causes  of  force. 
Whenever  we  want  to  do  any  work,  then,  we  must 
begin  by  learning,   if  possible,  what  are  the  causes 
which   will  produce  it  most  easily  and   abundantly. 
By  knowledge  we  shall  often  be  saved  from  much 
needless  labour. 

As  Sir  John  Herschel  has  explained,  science  some- 


32  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

times  shows  us  that  things  which  we  wish  to  do 
are  really  impossible,  as,  for  instance,  to  invent 
a  perpetual  motion,  that  is,  a  machine  which  moves 
itself.  At  other  times  science  teaches  us  that  the 
way  in  which  we  are  trying  to  make  some- 
thing is  altogether  the  wrong  way.  Thus, 
iron-masters  used  to  think  that  the  best  way  of  smelt- 
ing iron  in  the  blast-furnace  was  to  blow  the  furnace 
with  cold  air ;  science,  however,  showed  that,  instead 
of  being  cold,  the  air  sent  into  the  furnace  should  be 
made  as  hot  as  possible.  Then,  again,  science  often 
enables  us  to  do  our  work  with  a  great  saving 
of  labour.  The  boatman  or  bargeman  takes  care  to 
learn  the  state  of  the  tide,  so  that  he  may  have  the 
tide  in  his  favour  in  making  any  journey.  Meteor- 
ologists have  now  prepared  maps  of  the  oceans  show- 
ing the  sea-captain  where  he  will  find  winds  and  cur- 
rents most  favourable  to  a  rapid  voyage.  Lastly, 
science  sometimes  leads  us  to  discover 
wonderful  things  which  we  should  not  have 
otherwise  thought  it  possible  to  do;  it  is  suffi- 
cient to  mention  the  discovery  of  photography  and 
the  invention  of  the  telegraph  and  the  telephone.  No 
doubt  it  may  be  said  that  all  the  greatest  improve- 
ments in  industry — most  of  what  tends  to  raise  man 
above  the  condition  of  the  brute  animals — proceed 
from  science.  The  poet  Virgil  was  right  when  he 
said,  "  Happy  is  he  who  knows  the  causes 
of  things." 


CHAPTER  IV. 
DIVISION   OF   LABOUR. 

25.  How  Division  of  Labour  Arises.  When 
a  number  of  workmen  are  engaged  on  any  work,  we 
find  that  each  man  usually  takes  one  part  of  the  work, 
and  leaves  other  parts  of  the  work  to  his  mates. 
People  by  degrees  arrange  themselves  into  different 


j  DIVISION  OF  LABOUR.  33 

trades,  so  that  the  whole  work  done  in  any  place  is 
divided  into  many  employments  or  crafts.  This 
division  of  labour  is  found  in  all  civilised  countries, 
and  more  or  less  in  all  states  of  society,  which  are  not 
merely  barbarous.  In  every  village  there  is  the 
butcher  and  the  baker,  and  the*  blacksmith  and  the 
carpenter.  Even  in  a  single  family  there  is  division 
of  labour:  the  husband  ploughs,  or  cuts  timber;  the 
wife  cooks,  manages  the  house,  and  spins  or  weaves ; 
the  sons  hunt  or  tend  sheep  ;  the  daughters  employ 
themselves  as  milkmaids.  There  is  a  popular  couplet 
which  says — 

"  When  Adam  delved  and  Eve  span, 
Who  was  then  the  gentleman?" 

It  seems  to  express  the  fact  that  this  division  of 
labour  existed  in  very  early  times,  before  there  were 
any  gentlemen. 

In  modern  times  the  division  of  labour  is  immensely 
complicated  :  not  only  has  every  town  and  village  its 
different  tradespeople,  and  artisans  and  men  in 
different  posts  and  employments,  but  each  district  has 
its  peculiar  manufactures.  In  one  place  cotton  goods 
are  produced ;  in  another,  woollen  goods  ;  in  other  parts 
of  the  country  flax,  jute,  silk  are  manufactured.  Iron  is 
made  in  Staffordshire,  Cleveland,  South  Wales,  and 
Scotland  ;  copper  is  smelted  in  South  Wales  ;  crockery 
is  baked  in  the  potteries ;  hosiery  is  manufactured  in 
Nottingham  and  Leicester;  linens  are  sewed  in  the 
North  of  Ireland ;  and  so  on.  In  every  separate 
factory,  again,  there  is  division  of  labour;  there  is  the 
manager,  the  chief  clerk,  the  assistant  clerks ;  the 
foremen  of  different  departments,  the  timekeeper,  the 
engine-tenter,  and  stokers,  the  common  labourers, 
the  carters,  errand  boys,  porters,  &c.,  all  in  addition 
to  the  actual  mechanics  of  different  kinds  and  ranks 
who  do  the  principal  work.  Thus  the  division  of 
labour  spreads  itself  throughout  the  whole  of  society, 
from  the  Queen  and  her  Ministers,  down  to  the  errand 
boy,  or  the  street  scavenger. 


34          PRIMER  OF  POLITICAL  ECONOMY.         [CH. 

26.  Adam  Smith  on  the  Division  of  Labour. 

There  are  many  ways  in  which  we  gain  by  the  division 
of  labour,  but  Adam  Smith  has  treated  the  subject  so 
excellently  that  we  had  better,  in  the  first  place, 
consider  his  view  of  the  matter.  There  are,  as  he 
thought,  three  ways  in  which  advantage  arises  from  the 
division  of  labour,  namely — 

(i.)  Increase  of  dexterity  in  every  particular  work- 
man. 

(2.)  Saving  of  the  time  which  is  commonly  lost  in 
passing  from  one  kind  of  work  to  another. 

(3.)  The  invention  of  a  great  number  of  machines, 
which  facilitate  and  abridge  labour,  and  enable  one 
man  to  do  the  work  of  many. 

There  can  be  no  doubt  as  to  the  increase  of 
dexterity,  which  arises  from  practice.  Any  one  who 
has  tried  to  imitate  a  juggler,  or  to  play  the  piano, 
without  having  learned  to  do  it,  knows  how  absurdly 
he  fails.  Nobody  could  possibly  do  the  work  of  a 
glass-blower  without  long  practice.  Even  when  a 
man  can  do  a  job  in  some  sort  of  way,  he  will  do  it 
much  more  quickly  if  he  does  it  often.  Adam  Smith 
states  that  if  a  blacksmith  had  to  make  nails  without 
having  been  accustomed  to  the  work,  he  would  not 
make  above  200  or  300  bad  nails  in  a  day.  With 
practice  he  might  learn  to  make  800  or  1000  nails  in  a 
day ;  but  boys  who  are  brought  up  to  the  nailer's  trade 
can  turn  out  2300  nails  of  the  same  kind  in  the  same 
time.  But  there  is  no  need  of  many  examples  :  every- 
thing that  we  see  well  or  quickly  made  has  been  made 
by  men  who  have  spent  a  great  deal  of  time  and  trouble 
in  learning  and  practising  the  work. 

Secondly,  there  is  a  great  deal  of  time  lost 
when  a  man  changes  from  one  kind  of 
work  to  another  many  times  in  the  day.  Be- 
fore you  can  make  a  thing  you  must  get  all 
the  right  tools  and  materials  around  you ;  when 
you  have  finished  one  box,  for  instance,  you  are 
all  ready  to  make  another  with  less  trouble  than  the 


iv.]  DIVISION  OF  LABOUR.  35 

first ;  but  if  you  have  to  go  off  and  do  something  quite 
different,  such  as  to  mend  a  pair  of  shoes  or  write  a 
letter,  a  different  set  of  implements  have  to  be  got 
ready.  A  man,  as  Adam  Smith  thought,  saunters  a 
little  in  turning  his  hand  from  one  kind  of  employment 
to  another,  and  if  this  happens  frequently,  he  is  likely 
to  become  lazy. 

In  the  third  place,  Smith  asserted  that  the 
division  of  labour  leads  to  the  invention 
of  machines  which  abridge  labour,  because  men, 
he  thought,  were  much  more  likely  to  discover 
easy  methods  of  attaining  an  object  when  their 
whole  attention  is  directed  to  that  object.  But 
it  seems  doubtful  how  far  this  is  correct.  Work- 
men do  occasionally  invent  some  mode  of  less- 
ening their  labour,  and  a  few  important  inventions 
have  been  made  in  this  way.  But,  as  a  general  rule, 
the  division  of  labour  leads  to  invention,  because  it 
enables  ingenious  men  to  make  invention  their  pro- 
fession. The  greatest  inventors,  such  as  James  Watt, 
Bramah,  Fulton,  Roberts,  Nasmyth,  Howe,  Fairbairn, 
Whitworth,  the  Stephensons,  Wheatstone,  Bessemer, 
Siemens,  have  not  been  led  to  invention  in  the  way 
described  by  Adam  Smith,  but  have  cultivated  an 
original  genius  by  careful  study  and  long  practice  in 
mechanical  construction.  But  the  division  of  labour 
greatly  assists  invention,  because  it  enables  each  fac- 
tory to  adopt  particular  kinds  of  machinery.  In  Eng- 
land the  division  of  labour  is  continually  becoming 
more  and  more  minute,  and  it  is  not  uncommon  to 
find  that  the  whole  supply  of  some  commodity  is 
furnished  from  a  single  manufactory,  which  can  then 
afford  to  have  a  set  of  machines  invented  on  purpose 
to  produce  this  one  commodity.  Such  is  even  more 
the  case  in  the  large  manufactories  of  the  United  States. 

I  will  now  describe  four  other  ways  in  which  great 
saving  of  labour  arises  from  the  division  of  labour,  as 
follows  : — 

27,  The  Multiplication  of  Services.     A  great 


36  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

deal  of  labour  is  often  saved  by  arranging  work  so 
that  a  labourer  may  serve  many  persons  as  easily  as 
one.  If  a  messenger  is  going  to  carry  a  letter  to  the 
post-office,  he  can  as  readily  carry  a  score.  Instead 
of  twenty  people  each  carrying  their  own  letters,  one 
messenger  can  do  the  whole  work  without  more 
trouble.  This  explains  why  the  post-office  is  able  to 
forward  a  letter  from  any  part  of  the  kingdom  to  any 
other  part  for  a  penny  or  even  a  halfpenny.  There 
are  so  many  people  sending  and  receiving  letters,  that 
a  postman  usually  carries  a  great  many,  and  often 
delivers  half-a-dozen  at  once.  But  it  would  be  quite 
impossible  to  send  telegrams  so  cheaply,  because 
every  message  has  to  be  separately  telegraphed  along 
the  wires,  and  then  delivered  at  once  by  a  special 
messenger,  who  can  seldom  carry  more  than  one 
message  at  a  time.!/*"  Archbishop  Whately  pointed  out 
that  when  a  party  of  travellers  exploring  a  new 
country  camp  out  at  night,  they  naturally  divide  the 
work :  one  attends  to  the  horses,  another  unpacks  the 
stores,  a  third  makes  a  fire  and  cooks  the  supper,  a 
fourth  goes  for  water,  and  so  on.  It  would  be  quite 
absurd  if  a  dozen  travellers  in  one  party  were  to  light 
a  dozen  separate  fires,  and  cook  a  dozen  separate 
meals.  The  labour  of  lighting  a  fire  and  cooking  for 
twelve  persons  is  not  much  greater  than  doing  the 
same  for  one  or  two.  There  are  many  things  which, 
if  once  done,  will  serve  for  thousands  or  millions  of 
people.  If  a  person  gets  important  information,  as, 
for  instance,  that  a  storm  is  coming  across  the  Atlantic 
Ocean,  he  can  warn  a  whole  nation  by  means  of 
the  newspapers.  It  is  a  great  benefit  to  have  a 
meteorological  office  in  London,  where  two  or  three 
men  spend  their  labour  in  learning  the  weather  all 
over  the  country  by  means  of  the  telegraph,  and  thus 
enable  us  to  judge,  as  far  as  possible,  of  the  weather 
which  is  coming.  This  is  a  good  case  of  the  multi- 
plication of  services. 

28.  The    Multiplication  of  Copies  is   also  a 


iv.  1  DIVISION  OF  LABO UR. 


37 


means  of  increasing  immensely  the  produce  of  labour. 
When  the  proper  tools  and  models  for  making  a  thing 
are  once  provided,  it  is  sometimes  possible  to  go  on 
multiplying  copies  with  little  further  trouble.  To  cut 
the  dies  for  striking  a  medal  or  coin  is  a  very  slow  and 
costly  work ;  but,  when  once  good  dies  are  finished,  it 
is  easy  to  strike  a  great  many  coins  with  them,  and  the 
cost  of  the  striking  is  very  small.  The  printing  press, 
however,  is  the  best  case  of  multiplication  of  copies. 
To  have  the  whole  of  Shakespeare's  Plays  copied  out 
by  a  law  stationer  would  cost  more  than  two  hundred 
pounds,  and  every  new  copy  would  cost  as  much  as 
the  first.  Before  the  invention  of  printing,  books  used 
to  be  thus  copied  out,  and  manuscript  books  were 
therefore  very  expensive,  besides  being  full  of  mis- 
takes. The  whole  of  Shakespeare's  Plays  can  now  be 
bought  for  a  shilling  ;  and  any  ane  of  the  Waverley 
Novels  can  be  had  for  sixpence.  It  may  cost  several 
hundred  pounds  to  setup  the  type  for  a  large  book  and 
stereotype  it ;  but  when  this  is  once  done,  hundreds  of 
thousands  of  copies  can  be  struck  off,  and  the  cost  of 
each  copy  is  little  more  than  that  of  the  paper  and  the 
binding. 

Almost  all  the  common  things  we  use  now,  such  as 
ordinary  chairs  and  tables,  cups  and  saucers,  teapots, 
spoons  and  forks,  &c.,  are  made  by  machinery,  and  are 
copies  of  an  original  pattern.  A  good  chair  can  be 
bought  for  five  shillings  or  less,  but  if  you  wanted  to 
have  a  chair  made  of  a  new  pattern,  it  would  cost 
perhaps  five  or  ten  times  as  much. 

29.  Personal  Adaptation.  A  further  advantage 
of  the  division  of  labour  is  that,  when  there  are  many 
different  trades,  every  person  can  choose  that  trade 
for  which  he  is  best  suited — the  strong  healthy  man 
becomes  a  blacksmith ;  the  weaker  one  works  a  loom 
or  makes  shoes;  the  skilful  man  learns  to  be  a  watch- 
maker ;  the  most  ignorant  and  unskilful  can  find  work 
in  breaking  stones  or  mending  the  hedges.  Each  man 
will  generally  work  at  the  trade  in  which  he  can  get 


38          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

the  best  wages,  and  it  is  an  evident  loss  of  skill  if  the 
artisan  should  break  stones  or  sweep  the  streets.  Now, 
the  greater  the  division  of  labour  and  the  more  exten- 
sive factories  become,  the  better  chance  there  is  for 
finding  an  employment  just  suited  to  each  person's 
powers ;  clever  workmen  do  the  work  which  no  one 
else  can  do ;  they  have  common  labourers  to  help 
them  in  things  which  require  no  skill ;  foremen  plan 
out  the  work,  and  allot  it  to  the  artisans ;  clerks,  who 
are  quick  at  accounts,  keep  the  books,  and  pay  and 
receive  money ;  the  manager  of  the  factory  is  an 
ingenious  experienced  man,  who  can  give  his  whole 
attention  to  directing  the  work,  to  making  good  bar- 
gains, or  to  inventing  improvements  in  the  business. 
Every  one  is  thus  occupied  in  the  way  in  which  his 
labour  will  be  most  productive  and  useful  to  other 
people,  and  at  the  same  time  most  profitable  to 
himself. 

30.  Local  Adaptation.  Lastly,  the  division  of 
labour  allows  of  local  adaptation — that  is,  it  allows 
every  kind  of  work  to  be  done  in  the  place  most  suit- 
able for  it.  We  have  already  learnt  (sec.  22,  p.  29) 
that  each  kind  of  labour  should  be  carried  on  where  it 
is  most  productive;  but  this  cannot  be  done  unless 
there  be  division  of  labour — so  that  while  the  French 
grow  wine,  weave  silk,  or  make  articles  de  Paris,  they 
buy  the  cottons  of  Manchester,  the  beer  of  Burton-on- 
Trent,  or  the  coals  of  Newcastle.  When  trade  is  free, 
and  the  division  of  labour  is  perfect,  each  town  or 
district  learns  to  make  some  commodity  better  than 
other  places  :  watches  are  made  in  Clerkenwell ;  steel 
pens  in  Birmingham  ;  needles  at  Redditch ;  cutlery  at 
Sheffield  ;  pottery  at  Stoke  ;  ribbons  at  Coventry  ;  glass 
at  St.  Helen's ;  straw  bonnets  at  Luton ;  and  so  forth. 

It  is  not  always  possible  to  say  exactly  why  certain 
goods  are  made  better  in  one  place — for  instance,  silks 
in  Lyons — than  anywhere  else ;  but  so  it  often  is, 
and  people  should  be  left  as  free  as  possible  to  buy  the 
goods  they  like  best  Commodities  are  manufactured 


iv.]  DIVISION  OF  LABOUR.  39 

in  order  that  they  may  produce  pleasure  and  be  use- 
ful, not,  as  we  shall  see,  m  order  that  labourers  may  be 
kept  hard  at  work.  Now,  when  trade  is  left  free  it 
gives  rise  to  division  of  labour,  not  only  between  town 
and  town,  county  and  county,  but  between  the  most 
distant  nations  of  the  earth.  Thus  is  created  what 
may  be  called  the  territorial  division  of  labour.  / 
Commerce  between  nation  and  nation  is  not  only  one  of 
the  best  means  of  increasing  wealth  and  saving  labour, 
but  it  brings  us  nearer  to  the  time  when  all  nations 
will  live  in  harmony,  as  if  they  were  but  one  nation. 

31.  The  Combination  of  Labour.  We  now 
see  what  great  advantages  arise  from  each  man  learn- 
ing a  single  trade  thoroughly.  This  is  called  the  divi- 
sion of  labour,  because  it  divides  up  the  work  into  a 
great  many  different  operations  ;  nevertheless,  it  leads 
men  to  assist  each  other,  and  to  work  together  in 
manufacturing  the  same  goods.  Thus,  in  producing  a 
book,  a  great  many  trades  must  assist  each  other : 
type-founders  cast  the  type ;  mechanics  make  the 
printing  press ;  the  paper  is  manufactured  at  the  paper 
works  ;  printers'  ink  is  prepared  at  other  works ;  the 
publishers  arrange  the  business ;  the  author  supplies 
the  copy  ;  the  compositors  set  up  the  type ;  the  reader 
corrects  the  proofs  ;  the  pressmen  work  off  the  printed 
sheets  ;  then  there  are  still  the  bookbinders,  and  the 
booksellers,  besides  a  great  many  other  small  trades 
which  supply  the  tools  wanted  by  the  principal  trades. 
Thus,  society  is  like  a  very  complicated  machine,  in 
which  there  is  a  great  number  of  wheels,  and  wheels, 
within  wheels  ;  each  part  goes  on  attending  to  its  own 
business,  and  doing  the  same  work  over  and  over  again.. 
There  is  what  we  should  call  a  complex  organiza-\ 
tion  (Greek,  opyavov,  instrument),  that  is  to  say,  differ-  ] 
ent  people  and  different  trades  work  as  instruments  of  I 
each  other,  all  assisting  in  the  ultimate  result. 

But  it  is  to  be  observed  that  nobody  plans  out  these 
systems  of  divided  labour;  indeed  few  people  ever 
know  how  many  trades  there  are-,  and  how  they  are 


40          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

connected  together.  There  are  said  to  be  about  thirty- 
six  distinct  kinds  of  employment  in  making  and  putting 
together  the  parts  of  a  piano ;  there  are  about  forty 
trades  engaged  in  watchmaking ;  in  the  cotton  business 
there  are  more  than  a  hundred  occupations.  But  new 
trades  are  frequently  created,  especially  when  any 
new  discovery  takes  place;  thus,  there  are  at  least 
sixteen  different  trades  occupied  in  photography,  or  in 
making  the  things  required  by  photographers;  and 
railways  have  produced  whole  series  of  employments 
which  did  not  exist  fifty  years  ago.  These  trades 
arise  without  any  Act  of  Parliament  to  make  them 
or  allow  them.  There  is  no  law  to  say  how 
many  trades  there  shall  be,  nor  how  many  people 
shall  go  into  each  trade,  because  nobody  can  tell 
what  will  be  wanted  in  future  years.  These  things 
v  are  arranged  by  a  kind  of  social  instinct.  Each 
person  takes  up  the  kind  of  work  which  seems  to  suit 
him  and  to  pay  him  best  at  the  time. 

Another  and  a  totally  different  kind  of  combination 
of  labour  arises  when  men  arrange  to  assist  each  other 
in  doing  the  same  work.  Thus,  sailors  pulling  at  the 
same  rope  combine  their  labour  together ;  other  in- 
stances are,  carrying  the  same  ladder,  rowing  the  same 
boat,  and  so  forth.  In  this  case  there  is  said  to  be 
simple  combination  of  labour,  because  the  men 
r  -do  the  same  sort  of  work.  When  the  men  have  different 
operations  to  perform,  there  is  said  to  be  complex 
combination  of  labour,  as  when  one  man  points  a 
pin  and  another  makes  the  head.  On  board  a  ship 
there  is  both  simple  and  complex  combination.  When 
several  men  work  at  the  same  capstan  the  combination 
is  simple,  because  one  man  does  exactly  the  same  as 
the  others.  But  the  captain,  mate,  steersman,  carpen- 
ter, boatswain,  and  cook  work  together  in  complex 
combination,  since  each  attends  to  his  own  proper 
•duties.  Similarly,  in  a  company  of  soldiers  the  privates 
act  together  in  simple  combination,  but  the  officers  of 
•different  ranks  have  distinct  duties  to  perform,  so  that 


iv.]  DIVISION  OF  LABOUR.  41 

the  combination  becomes  complex.  Men  who  thus 
assist  each  other  are  usually  able  to  do  far  more  work 
than  if  they  acted  separately. 

32.  Disadvantages  of  the  Division  of 
Labour.  There  are  certainly  some  evils  which 
arise  out  of  the  great  division  of  labour  now  ex- 
isting in  civilised  countries.  These  evils  are  of  no 
account  compared  with  the  immense  benefits  which 
we  receive;  still  it  is  well  to  notice  them. 

In  the  first  place,  division  of  labour  tends  to^ 
make  a  man's  power  narrow  and  restricted; 
he  does  one  kind  of  work  so  constantly,  that  he  has 
no  time  to  learn  and  practice  other  kinds  of  work. 
A  man  becomes,  as  it  has  been  said,  worth  only  the 
tenth  part  of  a  pin ;  that  is,  there  are  men  who  know 
only  how  to  make,  for  instance,  the  head  of  a  pin. 
In  the  time  of  the  Romans  it  was  said,  ne  sutor  ultra 
crepidam,  let  not  the  shoemaker  go  beyond  his  last. 
When  a  man  accustomed  only  to  making  pins  or 
shoes  goes  into  the  far  west  states  of  America,  he 
finds  himself  unfitted  for  doing  all  the  kinds  of  hard 
work  required  from  a  settler.  The  poor  peasant  from 
Norway  or  Sweden,  who  seems  at  first  sight  a  less  in- 
telligent man,  is  able  to  build  his  own  house,  till 
the  ground,  tend  his  horse,  and  in  a  rough  way, 
make  his  own  carts,  implements,  and  household  furni- 
ture. Even  the  Red  Indian  is  much  better  able  to 
take  care  of  himself  in  a  new  country  than  the  edu- 
cated mechanic.  The  only  thing  to  be  said  is  that 
the  skilled  .shoemaker,  or  mechanic  of  whatever  sort, 
must  endeavour  to  keep  to  the  trade  which  he  has 
learnt  so  well.  It  is  a  misfortune  both  for  himself 
and  for  other  people  if  he  is  obliged  to  undertake  work 
which  he  cannot  do  so  well. 

A  second  disadvantage  of  the  division  of  labour  is 
that  trade    becomes  very   complicated,    and  ^ 
when   deranged   the   results   are   ruinous  to 
some  people.     Each  person  learns  to  supply  only 
a  particular  kind  of  goods,  and  if  change  of  fashion 


42 


PRIMER  OF  POLITICAL  ECONOMY. 


or  any  other  cause  leads  to  a  falling  off  in  the  de- 
mand for  that  kind  of  goods,  the  producer  is  left  in 
poverty,  until  he  can  learn  another  trade.  At  one 
time  the  making  of  crinoline  skirts  for  ladies  was  a 
large  and  profitable  trade  ;  now  it  has  ceased  almost 
entirely,  and  those  who  learnt  the  business  have  had 
to  seek  other  employments.  But  each  trade  is  gener- 
ally well  supplied  with  hands  perfectly  trained  to  the 
work,  and  it  is  very  difficult  for  fresh  workmen, 
especially  when  old,  to  learn  the  new  work,  and 
compete  with  those  who  have  long  practised  it.  In 
some  cases  this  has  been  successfully  done  ;  thus  the 
Cornish  miners,  when  the  mines  in  Cornwall  were  no 
longer  profitable,  went  into  the  collieries,  where  more 
hewers  of  coal  were  much  wanted.  But,  generally 
speaking,  it  is  very  difficult  to  find  a  new  employ- 
ment in  England,  and  this  is  a  strong  reason  why 
trades-unions  should  make  no  objection  to  new  men  en- 
tering a  trade  to  which  they  have  not  been  brought  up. 
The  colliers  tried  to  keep  the  Cornish  miners  out 
of  the  coal  pits.  In  order  to  keep  their  own  wages 
as  high  as  possible  they  would  let  other  men  starve. 
But  this  is  a  very  selfish  and  hurtful  way  of  acting. 
If  every  trade  were  thus  to  try  and  keep  all  other 
people  away,  as  if  the  trade  were  their  own  property, 
there  would  constantly  be  a  number  of  unfortunate 
_people  brought  to  the  workhouse  through,  no  fault  gf 
their_own.  It  is  most  important,  therefore,  to  main- 
tain a  man's  right  to  do  whatever  kind  of  work  he  can 
get.  It  is  one  of  the  first  and  most  necessary  rights 
of  a  labourer  to  labour  in  any  honest  way  he  finds 
most  profitable  to  himself.  Labour  must  be  free. 


CHAPTER  V. 
CAPITAL. 

33.  What  is  capital  ?     We  will  now  endeavour 
to  understand  the  nature  of  the   third    requisite 


v.]  CAPITAL.  43 

of  production,  called  capital,  which  con-' 
sists  of  wealth  used  to  help  us  in  pro- 
ducing more  wealth.  All  capital  is  wealth,.. 
/  but  it  is  not  true  that  all  wealth  is  capital.  If  a  man 
has  a  stock  of  food,  or  a  stock  of  money  with  which 
he  buys  food,  and  he  merely  lives  upon  this  without 
doing  any  labour,  his  stock  is  not  considered  to  be 
capital,  because  he  is  not  producing  wealth  in  the 
meantime.  But  if  he  is  occupied  in  building  a  house, 
or  sinking  a  well,  or  making  a  cart,  or  producing  any- 
thing which  will  afterwards  save  labour  and  give  utility, 
then  his  stock  is  capital. 

The  great  advantage  of  capital  is  that  it  enables  us 
to  do  work  in  the  least  laborious  way.  If  a  man 
wants  to  convey  water  from  a  well  to  his  house,  and 
has  very  little  capital,  he  can  only  get  a  bucket  and 
carry  every  bucket-full  separately ;  this  is  very  labori- 
ous. If  he  has  more  capital,  he  can  get  a  barrel  and 
wheel  it  on  a  barrow,  which  takes  off  a  large  part  of 
the  weight ;  thus  he  saves  much  labour  by  the  labour 
spent  upon  the  barrel  and  barrow.  If  he  has  still 
more  capital  his  best  way  will  be  to  make  a  canal,  or 
channel,  or  even  to  lay  a  metal  pipe  all  the  way  from 
the  well  to  his  house  ;  this  costs  a  great  deal  of  labour 
at  the  time,  but,  when  once  it  is  made,  the  water  will 
perhaps  run  down  by  its  own  weight,  and  all  the  rest 
of  his  life  he  will  be  saved  from  the  trouble  of  carry- 
ing water. 

34.  Fixed  and  Circulating  Capitals.  Capital 
is  usually  said  to  be  either  fixed  or  circulating  capital, 
and  we  ought  to  learn  very  thoroughly  the  difference 
between  these  two  kinds.  Fixed  capital  consists 
of  factories,  machines,  tools,  ships,  railways,  docks, 
carts,  carnages,  and  other  things,  which  last  a  long  , 
time,  and  assist  work.  It  does  not  include,  indeed,  all 
kinds  of  fixed  -  property.  Churches,  monuments,  pic- 
tures, books,  ornamental  trees,  &c.,  last  a  long  time, 
but  they  are  not  fixed  capital,  because  they  are  not 
used  to  help  us  in  producing  new  wealth.  They  may 


44           PRIMER   OF  POLITICAL  ECONOMY.          [CH. 

-        .  —  *  __ 


do  good;'.  and  give  pleasure,  and  they  form  a  part 
of  the  wealth  of  the  kingdom  ;  but  they  are  not 
capital  according  to  the  usual  employment  of  the 
name. 

Circulating  capital  consists  of  the  food, 
clothes,  fuel,  and  other  things  which  are  re- 
quired to  support  labourers  while  they  are 
engaged  in  productive  work.  It  is  called  cir- 
culating because  it  does  not  last  long  ;  potatoes  and 
cabbages  are  eaten  up,  and  a  new  supply  has  to  be 
grown  ;  clothes  wear  out  in  a  few  months  or  a  year, 
and  new  ones  have  to  be  bought.  The  circulating 
capital,  which  is  in  the  country  now,  is  not  the  same 
circulating  capital  which  was  in  the  country  two  years 
ago.  But  the  fixed  capital  is  nearly  the  same  :  some 
factories  may  have  been  burnt  or  pulled  down  ;  some 
machines  may  have  become  worn  out,  and  have  been 
replaced  by  new  ones.  But  these  changes  in  fixed 
capital  are  comparatively  few  ;  whereas  the  whole  or 
nearly  the  whole  of  the  circulating  capital  is  changed 
every  year  or  two. 

But  the  fact  is  that  we  cannot  distinguish  so  easily 
as  we  may  seem  to  do  between  fixed  and  circulating 
capitals;  there  may  be  kinds  of  capital  which  are 
neither  quite  fixed  nor  quite  circulating,  but  some- 
thing between  the  two.  Flour  is  soon  eaten  up,  and 
is  circulating  capital.  A  flour  mill  lasts  fifty  years, 
perhaps,  and  may  certainly  be  called  fixed  capital  ;  a 
flour  sack  lasts  about  ten  years  on  an  average.  Is 
such  a  sack  fixed  or  circulating  capital  ?  It  seems  to 
me  difficult  to  say.  In  the  case  of  a  railway,  the  coal 
and  oil  wanted  for  the  engine  are  used  up  at  once, 
and  are  clearly  circulating  capital;  the  railway  wagons 
last  about  ten  years,  the  locomotive  engines  twenty 
years  or  more  ;  the  railway  stations  last  at  least  thirty 
years  ;  there  is  no  reason  why  the  bridges'  and 
tunnels  and  embankments  should  not  last  hun- 
dreds of  years  with  proper  care.  Thus  we  see  that 
capital  is  altogether  a  question  of  time,  and 


v]  CAPITAL.  45 

we  must  say  that  capital  is  more  fixed  as  it 
endures  or  continues  useful  a  longer  time; 
it  is  more  circulating  in  proportion  as  it  is 
sooner  worn  out  or  destroyed,  and  thus  re- 
quires to  be  more  frequently  replaced. 

35.  How  Capital  is  obtained.  Capital  is 
the  result  of  saving  or  abstinence,  that  is,  it 
can  only  be  obtained  by  working  to  produce  wealth, 
and  then  not  immediately  consuming  that  wealth. 
The  poor  savage  who  has  to  labour  hard  every  day 
for  fear  that  he  may  have  to  go  without  food,  has 
no  capital;  but  when  he  has  food  in  hand,  and  can 
employ  himself  in  making  bows  and  arrows  to  facili- 
tate the  capture  of  animals,  he  is  investing  capital  in 
the  bows  and  arrows.  Whenever  we  work  in  this  way 
for  a  future  purpose,  we  are  living  on  capital  and 
investing  it.  The  abstinence  (Latin,  abs,  from,  and 
tcnens,  holding)  consists  in  holding  off  from  the  enjoy- 
ment of  something  which  we  have  produced,  or  might 
produce  with  the  same  labour.  To  save  is  to  keejv 
something  whole  or  untouched  for  future  use ;  we 
save  it  as  long  as  we  do  not  consume  it.  If  I  have  a 
stock  of  flour  and  eat  it  up,  there  is  an  end  of  the 
flour,  and  I  cannot  be  said  to  save  that.  But  if, 
while  eating  the  flour,  I  am  engaged  in  making  a  plough 
or  a  cart,  or  any  other  durable  thing  which  will  help 
me  in  production,  I  have  turned  one  form  of  capital 
into  another  form.  I  might  have  eaten  the  flour  in 
idleness,  in  which  case  it  would  not  have  been  capital. 
But,  while  eating  it,  I  worked  for  a  future  purpose. 
In  so  doing  I  am  said  to  invest  capital,  which 
means  to  turn  circulating  into  fixed  capital, 
or  less  durable  into  more  durable  capital. 
Capital,  accordingly,  is  invested  for  longer  or  shorter 
periods  according  to  the  durability  of  the  form  in 
which  it  is  invested  (Latin,  /«,  on,  and  vestire,  to 
clothe).  A  good  plough  will  perhaps  last  twenty 
years ;  all  through  that  time  the  owner  should  be 
getting  back  by  its  use  the  benefit  of  the  labour  and 


46  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

capital  spent  in  making  it.  When  it  is  worn  out,  he 
ought  to  have  all  the  capital  it  cost  paid  back,  with 
some  increase  or  interest.  Capital  invested  in  railway 
wagons  should  pay  itself  back  during  the  ten  years 
that  the  wagons  last  on  an  average. 

The  capital  invested  in  any  work  may  always  be 
said  to  consist  of  wages  or  what  is  bought  with  wages. 
Thus  the  capital  invested  in  railways  really  ..consisted 
of  the  food,  clothes,  and  other  commodities  consumed 
by  the  labourers  who  made  the  railways.  It  is  true 
that  tools  also  were  needed  as  well  as  the  iron  rails, 
sleepers,  bricks,  and  other  materials  required  for  the 
work.  But  as  these  things  had  previously  been  made 
by  labour,  we  may  consider  that  the  capital  really 
invested  in  them  was  the  wages  of  the  labourers  who 
had  already  made  them.  Thus,  when  we  go  far 
enough  back,  we  always  find  that  the  capital 
invested  consisted  of  the  maintenance  of 
labourers. 

36.  Investment  of  Capital.  We  have  two 
things  to  consider  with  regard  to  the  investment  of 
capital,  firstly,  the  quantity  of  the  capital,  and 
secondly,  the  length  of  time  for  which  it  is 
invested.  The  same  quantity  of  capital  will  keep 
more  or  less  men  at  work,  according  as  it  is  invested 
for  shorter  or  longer  periods.  A  man  in  growing 
potatoes  only  needs  to  wait  for  the  result  of  his  labour 
during  one  year  on  an  average.  If  his  food  and 
clothing  during  one  year  cost  thirty  pounds,  then 
capital  worth  thirty  pounds  is  sufficient  to  keep  him  at 
work  in  this  way.  Three  men  cultivating  potatoes 
will  of  course  require  three  times  as  much  capital,  or 
ninety  pounds  worth;  ten  men  will  need  three  hundred 
pounds  worth,  and  so  on  in  proportion.  But  in  grow- 
ing vines  it  is  necessary  to  wait  several  years  after  the 
vines  are  planted  before  they  begin  to  bear.  Suppose 
it  to  require  five  years  waiting,  then  the  labourer  will 
want  5  x  30,  or  one  hundred  and  fifty  pounds  worth  of 
capital  before  he  can  grow  vines.  Three  vine-growers 


v.]  CAPITAL.  47 

will  want  3  x  5  x  30,  or  four  hundred  and  fifty  pounds 
worth  of  capital;  ten  men,  10  x  5  x  30,  or  fifteen  hun- 
dred pounds  worth,  and  so  on  in  proportion.  Thus 
we  see  clearly  that  the  capital  required  in  any  kind  of 
industry  is  proportional  to  the  number  of  men  em- 
ployed, and  also  to  the  length  of  time  for  which  the 
capital  remains  locked  up,  or  invested  on  the  average. 
But  there  is  no  fixed  proportion  whatever  between  the 
number  of"  labourers  and  the  capital  they  require — it 
entirely  depends  upon  the  length  of  time  in  which  the 
capital  is  turned  over,  that  is,  invested,  and  got  back 
again.  A  poor  savage  manages  to  live  on  a  few  days' 
capital  in  hand;  a  potato  grower  on  one  year's  capital. 
On  a  modern  farm  in  which  many  durable  improvements 
are  made,  the  quantity  of  capital  required  is  very  much 
greater.  To  employ  men  upon  a  railway  requires 
immense  capital,  because  so  much  of  it  is  sunk  in  a 
very  fixed  and  durable  form  in  the  embankments, 
tunnels,  stations,  rails,  and  engines. 

37.  Labour  cannot  be  Capital.  It  is  not  un- 
common to  hear  it  said  that  labour  is  the  poor 
man's  capital;  and  then  it  is  argued  that  the  poor 
man  has  just  as  much  right  to  live  upon  his  capital  as 
the  rich  man  upon  his.  And  so  he  has,  if  he  can  do 
it.  If  a  labourer  can  go  and  produce  any  kind  of 
wealth,  and  exchange  it  for  food  and  necessaries,  of 
course  he  may  do  so.  But,  as  a  general  rule,  he 
cannot  do  this  without  working  for  a  length  of  time, 
waiting  till  the  produce  is  finished  and  sold.  In  order 
to  do  this  he  wants  something  more  than  his  labour, 
namely,  his  food  in  the  meantime,  besides  materials 
and  tools.  These  form  the  required  capital,  and  there 
is  no  good  in  calling  labour  capital  when  it  is  really 
quite  a  different  thing.  At  other  times  I  have  heard 
it  said  that  land  is  capital,  intelligence  is 
capital,  and  so  forth.  These  are  all  misleading 
expressions.  The  intended  meaning  seems  to  be  that 
some  people  live  upon  what  they  get  from  land,  or 
from  intelligence,  as  other  people  live  upon  what  they 
5 


48  PRIMER  OF  POLITICAL  ECONOMY.     ^    [CH. 

get  as  interest  upon  capital.  Nevertheless,  land  is  not 
capital,  nor  is  intelligence  capital.  Production  requires, 
as  we  have  seen,  three  distinct  things,  namely,  land, 
labour,  and  capital ;  and  there  is  much  harm  in  con- 
fusing things  together  by  giving  them  the  same  name 
when  they  are  not  the  same  thing. 


CHAPTER  VI. 
DISTRIBUTION   OF  WEALTH. 

38.  How  Wealth  is  Shared.  We  have  learned 
what  wealth  is,  how  it  is  to  be  used,  and  how  it  may 
be  produced  in  the  greatest  quantities,  with  the  least 
possible  labour,  but  we  have  yet  to  enter  on  the  more 
difficult  parts  of  our  subject.  We  must  now  try  to 
make  out  how  wealth  is  shared  among  those  who  have 
a  hand  in  producing  it.  The  requisites  of  production, 
as  we  have  seen,  are  land,  labour,  and  capital;  if  these 
were  all  supplied  by  the  same  person,  no  doubt  the 
produce  ought  all  to  belong  to  him,  with  the  exception 
of  what  is  taken  by  the  government  as  taxes.  But,  in 
a  state  of  society  such  as  exists  at  present,  the  labourer 
seldom  owns  all  the  land  and  capital  he  uses;  he 
goes  to  work  on  another  man's  farm,  or  in  another 
man's  factory ;  he  lives  in  another  man's  house,  and 
often  eats  another  man's  food ;  he  derives  benefits  from 
other  men's  inventions,  and  discoveries;  and  he  uses 
roads,  railways,  public  buildings,  &c.,  furnished  at  the 
cost  of  the  community. 

The  production  of  wealth,  therefore,  depends  not 
on  the  will  and  exertions  of  a  single  man,  but  on  the 
proper  bringing  together  of  land,  labour,  and  capital, 
by  different  persons  and  classes  ot  persons.  These 
different  persons  must  have  their  several  shares  of  the 
wealth  produced ;  if  they  furnish  something  requisite 
for  producing,  they  can  make  a  bargain  and  ask  for 
more  or  less  of  the  produce.  But  it  is  not  mere 
chance  or  caprice  which  governs  the  sharing 


vi.]  .  DISTRIBUTION  OF  WEALTH.  49  x 

of  wealth,  and  we  have  to  learn  the  natural  , 
laws  according  to  which  the  distribution 
takes  place.  We  must  ascertain  how  it  is  that  many 
of  the  population  get  so  little,  and  some  so  much. 
Men  work  very  hard  on  a  farm  and  raise  crops ;  the 
landlord  eomes-imdr  takes  away  a  large  part  as  rent, 
so  that  the  labourers  have  barely  enough  to  live  upon. 
When  we  are  able  to  understand  why  the  labourer  gets 
so  little  at  present,  we  shall  see,  perhaps,  how  he  might 
manage  to  get  more,  but  in  any  case  we  shall  see  that 
it  is  due  in  great  part  to  tfyejaws  of  nature.^ 

The  part  of  our  subject  ^vvhich  weTare^iow  going 
to  consider  is  called  the  distribution  of  wealth, 
because  it  teaches  us  how  the  wealth  produced  is 
distributed  (Latin,  dis,  apart,  and  tribuere,  to  allot) 
between  the  labourers,  the  owners  of  land,  the  owners 
of  capital,  and  the  government.  The  part  which  the 
labourer  gets  is  called  wages  ;  the  share  of  the  land  , 
owner  is  called  rent ;  that  of  the  capitalist  is  inter- 
est ;  and  the  government  take  taxes.  We  may 
say  that,  as  a  general  rule,  the  produce  of  work  is 
divided  into  four  shares,  which  may  be  thus  shown : 
produce  ~  wages  +  rent  +  interest  +  taxes. 

39.  The  Labourer's  Share  —  Wages.  It 
ought  to  be  carefully  remembered  that  the  names 
wages,  rent,  and  interest,  as  here  used,  do  not 
exactly  agree  in  meaning  with  the  names  as  we  em- 
ploy them  in  common  life.  The  wages  paid  to 
workmen  are  sometimes  more  than  wages,  being 
partly  interest ;  the  rent  almost  always  consists  partly 
of  interest ;  and  what  is  called  interest  may  in  some 
degree  be  really  wages  or  rent. 

By  wages  we  mean,  in  political  economy,  nothing 
but  what  goes  to  pay  for  the  trouble  of  labour.  But 
many  workmen  own  their  own  tools ;  masons  have  a 
boxful  of  chisels,  mallets,  rules,  &c..;  carpenters  often 
require  twenty  or  thirty  pounds'  worth  of  planes  and 
other  implements ;  a  pianoforte  maker  sometimes  owns 
seventy  pounds'  worth  of  tools;  even  gardeners  re- 


5o          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

quire  spades,  rakes,  a  barrow,  scythe,  or  perhaps  a 
mowing  machine  and  a  roller.  Now,  all  such  tools 
represent  so  much  invested  capital,  and  a  certain 
amount  of  interest  must  be  paid  for  this  capital.  A 
pianoforte  maker  might  expect  five  pounds  a  year  as 
interest  upon  the  cost  of  his  tools.  But  true  wages, 
are  what  remains  after  allowance  has  been  made  for 
'such  interest,  and  it  would  be  proper  to  subtract  also 
what  is  paid  to  the  government  as  taxes. 

40.  The   Land   Owner's    Share — Rent,    the 
second  part  of  the  produce,  means,  in  political  economy, 
what  is  paid  for  the  use  of  a  natural  agent,  whether 
land,  or  beds  of  minerals,  or  rivers,  or  lakes.     The 
rent  of  a  house  or  factory  is,  therefore,  not  all  rent  in 
our  meaning  of  the  word.     Capital  has  been  spent  in 
building  the  house  or  factory,  and  interest  must  be 
paid  on  this  capital ;  we  must  then  deduct  this  interest 
from  what  is  commonly  called  the  rent,  before  we  can 
find  out  what  is  really  rent.     The  ground  rent  of  a 
house  is  the  rent  paid  for  the  ground  on  which  it 
stands,  and  this  will  be  more  nearly  the  true  rent, 
apart  from  interest.     Similarly,  the  ordinary  rent  of  a 
farm  will  usually  include  interest  upon   the  capital 
spent   on   the   farm  buildings,   roads,  gates,   fences, 
drains,  and  other  improvements.     We  shall  afterwards 
learn  exactly  how  true  rent  arises. 

41.  The    Capitalist's    Share.       The    proper 
share  of  the  capitalist  is  interest ;  but  this  is  usually 
a  good  deal  less  than  what  actually  remains  in  the 
hands  of  the  capitalist.     Business  is  generally  carried 
on   by  some  capitalist  who  rents  a  piece  of  land, 
builds  a  factory,  purchases  machinery,  and  then  em- 
ploys men  to  work  the  machinery,  paying  them  wages. 
The   capitalist   himself  often  acts   as   manager,  and 
works   every  day  almost   as   long  as   the  workmen. 
When  the  goods  are  finished  and  sold,  he  keeps  the 
whole  of  the  money  he  gets  for  them ;  but  then  he 
has  already  paid  out  a  large  sum  as  wages,  while  the 
goods  were  being  made ;  another  part  goes  to  pay  the 


vi.]  DISTRIBUTION  OF  WEALTH.  53; 

rent  of  the  land  which  he  has  hired.  Having  struck 
off  these  portions,  there  ought  to  remain  a  certain 
profit,  part  of  which  he  uses  to  live  upon.  But 
even  this  profit  consists  of  more  than  interest  upon 
his  capital.  It  should  include  also  a  payment  for 
his  labour  in  superintending  the  business.  The  mana- 
ger of  a  factory  may  seldom  touch  the  cotton,  flax, 
iron,  or  other  material,  which  is  manufactured; 
nevertheless,  he  works  with  his  head  and  his  pen, 
calculating  the  prices  at  which  he  can  produce  goods, 
inquiring  where  he  can  buy  the  materials  most 
cheaply,  choosing  good  workmen,  keeping  the  ac- 
counts straight,  and  so  on.  Severe  mental  labour  is 
really  far  more  difficult  and  exhausting  than  manual 
labour ;  and  in  raising  up  a  good  business,  and  carry- 
ing it  through  times  of  danger,  a  manager  has  to 
undergo  great  anxiety  and  mental  fatigue.  Thus,  it 
is  necessary  that  a  successful  manager  should  receive 
a  considerable  share  of  the  produce,  so  as  to  make  it 
worth  his  while  to  give  this  labour.  His  share  is  called 
the  wages  of  superintendence,  and,  although 
usually  much  larger  than  the  share  of  a  common 
labourer,  it  is  really  wages  of  the  same  nature. 

Another  part  of  the  capitalist's  so-called  profit 
ought  to  be  laid  aside  as  recompense  for  risk. 
There  is  always  more  or  less  uncertainty  in  trade-. 
and  even  the  most  skilful  and  careful  manager  may 
lose  money  by'ccircumstances  over  which  he  has  no 
control?  Sometimes,  after  building  a  factory,  the 
demand  for  the  goods  which  he  is  going  to  produce 
falls  off;  sometimes  the  materials  cannot  be  bought; 
perhaps  it  is  discovered,  when  too  late,  that  the 
factory  has  been  built  in  an  unsuitable  place ;  occa- 
sionally, too,  the  workmen  are  discontented,  and 
refuse  to  work  for  such  wages  as  the  capitalist  can 
afford  to  pay.  Now,  whenever  any  of  these  mis- 
takes or  misfortunes  happen,  it  is  the  capitalist  who 
mainly  suffers,  because  he  loses  a  great  deal  of 
money,  on  which  he  might  otherwise  have  lived 


52          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

comfortably.  Sometimes  men  who  have  worked 
-hard  all  their  lives,  and  grown  rich  by  degrees,  lose 
all  their  wealth  again  in  the  end,  by  some  error  of 
judgment  or  by  some  unfortunate  event  due  to  no 
fault  of  their  own. 

A  capitalist,  then,  must  have  some  inducement  for 
running  into  these  disagreeable  risks ;  by  lending 
his  capital  to  the  government  he  might  get  interest 
for  it,  and  be  nearly  sure  not  to  lose.  If,  then,  he 
puts  it  into  trade,  and  runs  the  risk  of  loss,  he  must 
have  a  recompense  for  the  risk.  This  ought  to  be 
at  least  enough  to  make  the  profits  of  the  success- 
ful business  balance  the  losses  of  the  unfortunate 
ones,  so  that  on  the  average  capitalists  will  get  the 
interest  of  capital  and  the  wages  of  superintendence 
free  from  loss.  We  may  say,  then,  that — 

profit  =  wages  of  superintendence 

+  interest  +  recompense  for  risk. 

42.  About  Interest.  That  which  is  paid  for  the 
use  of  capital  altogether  apart  from  what  is  due  for 
the  trouble  and  risk  of  the  person  conducting  the 
business,  is  called  interest.  This  interest,  of  course, 
will  be  greater  or  less  according  as  the  amount  of 
capital  is  greater  or  less;  it  will  also  be  greater  or 
less  according  as  the  capital  is  employed  for  a  longer 
or  shorter  time.  Thus  the  rate  of  interest  is  always 
stated  in  proportion  to  the  capital  sum  and  to  the 
time ;  five  per  cent,  per  annum  means  that,  for  every 
hundred  pounds  of  capital,  five  pounds  are  paid 
during  every  year  in  which  the  capital  is  used,  and 
in  the  same  proportion  for  longer  or  shorter  times. 

The  rates  of  interest  actually  paid  in  business  vary 
very  much,  from  one  or  two  per  cent,  up  to  fifty  per 
cent,  or  more.  When  the  rate  is  above  five  or  six  per 
cent,  it  will  be  to  some  extent  not  true  interest,  but 
compensation  for  the  risk  of  losing  the  capital  alto- 
gether. To  learn  the  true  average  rate  of  interest,  we 
must  inquire  what  is  paid  for  money  lent  to  those  who 
are  sure  to  pay  it  back,  and  who  give  property  in 


vi.  ]  DISTR1B  UTION  OF  WEAL  TH.  5  3 

pledge,  so  that  there  may  be  no  doubt  about  the 
matter.  It  seems  probable  that  the  true  average* 
rate  of  interest  in  England  is  at  present  about  four 
per  cent,  but  it  varies  in  different  countries,  being 
lower  in  England  and  Holland  than  anywhere  else. 
In  the  United  States  it  is  probably  six  or  seven  per  cent 

The  most  important  fact  about  interest  is  that  it  is  .^ 
the  same  in  one  business  as  in  another.  The 
rates  of  profit  differ  very  much,  it  is  true,  but  this  is 
because  the  labour  of  superintendence  is  different,  or 
because  there  is  greater  risk  in  one  trade  than  another. 
But  the  true  interest  is  the  same,  because  capital,  be- 
ing lent  in  the  form  of  money,  can  be  lent  to  one 
trade  just  as  easily  as  to  another.  There  is  nothing 
in  circulating  capital  which  fits  it  for  one  trade  more 
than  another :  accordingly  it  will  be  lent  to  that  trade 
which  offers  ever  so  little  more  interest  than  other 
trades.  Thus  there  is  a  constant  tendency  to  > 
the  equality  of  interest  in  all  branches  of 
industry. 

CHAPTER  VII. 
WAGES. 

43.  Money  Wages  and  Real  Wages.  Wages, 
as  we  have  already  learnt,  are  the  payments  received . 
by  a  labourer  in  return  for  his  labour.  It  does  not 
matter  whether  these  payments  are  received  daily, 
weekly,  monthly,  quarterly,  or  yearly.  A  day  gardener 
is,  perhaps,  paid  every  evening ;  an  artisan  is  usually 
paid  on  Saturday  or  Friday  night,  or  sometimes  fort- 
nightly ;  clerks  receive  their  salaries  monthly ;  mana- 
gers, officers,  secretaries,  and  others,  are  paid  quarterly, 
or  sometimes  half-yearly.  When  the  wages  are  paid 
monthly,  or  at  longer  intervals,  they  are  generally 
called  salary  (Latin,  salarium,  money  given  to 
Roman  soldiers  for  salt) ;  but  if  the  salary  is  paid 
for  labour  and  nothing  else,  it  is  exactly  the  same  in 
nature  as  wages. 


54          PRIMER  OF  POLITICAL  ECONOMY.          [CH, 

I  said,  in  the  last  chapter,  that  wages  consist  of  a 
share  of  the  produce  of  labour,  land,  and  capital ;  in 
the  preceding  paragraph,  I  have  been  saying  that  it 
consists  of  payments.  Here  arises  one  of  the  great 
difficulties  of  our  subject.  As  a  matter  of  fact,  the 
wages  received  by  labourers,  in  the  present  day,  con- 
sist almost  always  of  money.  A  person  working  in  a 
cotton  mill  produces  cotton  yarn ;  but  he  does  not 
receive  at  the  end  of  the  week  so  much  cotton  yarn ; 
he  receives  so  many  shillings.  This  is  much  more 
convenient ;  for  if  the  labourer  received  cotton  yarn, 
or  any  other  commodity  which  he  produces,  he  would 
have  to  go  and  sell  it  in  order  to  buy  food  and  clothes, 
and  to  pay  the  rent  of  his  house.  Instead,  then,  of 
receiving  an  actual  share  of  the  produce,  he  receives 
from  the  capitalist  as  much  money  as  is  supposed  to 
be  equal  in  value  to  his  share. 

Now,  we  shall  see  that  it  is  requisite  to  distinguish 
between  money  wages  and  real  wages.  What 
a  labourer  really  works  for  is  the  bread,  clothes,  beer, 
tobacco,  or  other  things  which  he  consumes;  these 
form  the  real  wages.  If  he  gets  more  of  these,  it  does 
aiot  matter  whether  he  gets  more  or  less  money  wages; 
he  cannot  eat  money,  or  use  it  in  any  way  except  to 
spend  it  at  shops.  If  corn  or  cotton  becomes  dearer, 
the  wages  of  every  workman  are  really  lessened; 
because  he  can  buy  less  corn  or  cotton  with  his  money 
wages.  On  the  other  hand,  everything  which  makes 
goods  cheaper,  increases  the  real  wages  of  workmen ; 
because  they  can  get  more  of  the  goods  in  exchange 
for  the  same  -money  wages.  People  are  accustomed 
to  think  far  too  much  about  the  number  of  shillings 
they  get  for  a  day's  work ;  they  fancy  that,  if  they 
get  25  per  cent,  more  money  wages,  they  must  be  25 
per  cent,  more  wealthy.  But  this  is  not  necessarily 
the  case ;  for  if  the  prices  of  goods  on  the  average 
have  also  risen  25  per  cent,  they  will  be  really  no 
richer  nor  poorer  than  before. 

We  now  begin  to  see  that  to  increase  the  produc- 


VIL]  WAGES.  55 

tiveness  of  labour  is  really  the  important  thing  for 
everybody.  For  if  anything,  such  as  cotton  cloth, 
can  be  made  with  less  labour,  it  can  be  sold  more 
cheaply,  and  everybody  can  buy  more  of  it  for  the 
same  money,  and  thus  be  better  clothed.  If  the  same 
were  the  case  with  other  goods,  so  that  linen,  stock- 
ings, boots,  bricks,  houses,  chairs,  tables,  clocks,  books, 
&c.,  were  all  made  in  larger  quantities  than  before, 
with  the  same  labour,  everybody  in  the  country  would 
be  better  supplied  with  the  things  which  he  really 
wishes  to  have. 

It  is  certain  that  a  real  increase  of  wages  to 
the  people  at  large  is  to  be  obtained  only  by 
making  things  cheaply.  No  doubt  a  tradesman 
gains  sometimes  when  the  goods  he  deals  in  become 
dearer,  but  to  the  extent  that  they  are  dearer,  all 
consumers  of  the  goods  lose,  because  they  can  enjoy 
less  comforts  and  necessaries.  But,  if  goods  are  made 
cheaply,  all  consumers  gain  thereby,  and,  all  people 
being  consumers,  all  gain  so  far  as  they  use  the 
cheapened  articles.  Nor  does  it  follow  that  artisans 
and  tradespeople  suffer  by  the  cheapening  of  goods. 
If,  owing  to  some  invention,  much  greater  quanti- 
ties are  made  with  the  same  labour,  the  artisan 
will  probably.be  able  to  sell  his  share  of  the  produce 
for  more  than  before,  that  is,  his  wages  will  rise  instead 
of  falling  by  the  cheapening  of  the  produce.  The 
tradesman,  again,  may  gain  less  on  each  separate 
article  that  he  sells,  but  he  may  sell  so  much  more 
than  before,  that  his  total  profits  may  be  increased. 
The  result  to  which  we  '  come  is,  then,  that  all 
increase  of  produce,  and  cheapening  of  goods 
tends  to  the^benefit  of  the  public,  and  this  is 
the  true  way  in  which  people  are  made 
richer. 

44.  How  Differences  of  Wages  arise.  It  is 
very  important  to  understand  rightly  the  reasons  of  the 
great  differences  which  exist  between  the  rates  of 
wages  paid  in  different  occupations.  Some  kinds  of 


5 6  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

labourers  are  paid  a  hundred  or  even  a  thousand  times 
as  much  for  a  day's  work  as  others,  and  it  may  seem 
very  unfair  that  there  should  be  such  great  differences. 
We  must  learn  to  see  that  this  is  the  necessary  result 
of  the  various  characters  and  abilities  of  persons, 
partly  arising  from  the  actual  strength  of  mind  and 
body  with  which  they  were  born,  partly  from  the 
opportunities  of  education  and  experience  which  they 
have  happened  to  enjoy.  We  are  often  told  that  all 
men  are  born  free  and  equal;  however  this  may  be  in 
a  legal  point  of  view,  it  is  not  true  in  other  ways. 
One  child  is  often  strong  and  stout  from  its  earliest 
years  ;  another  weakly  and  unfit  for  the  same  exertion. 
In  mind  there  are  still  more  remarkable  differences. 

The  rates  of  wages  in  different  employments  are 
governed  by  the  laws  of  supply  and  demand 
which  we  shall  afterwards  consider.  Just  as  goods 
rise  in  price  when  there  is  little  in  the  market  and 
much  is  wanted,  so  the  price  of  men's  labour  rises 
when  much  of  any  particular  kind  is  wanted  and  little 
is  to  be  had.  It  does  not  matter  much  whether  we 
speak  of  demand  for  goods  or  demand  for  the  labour, 
which  is  necessary  to  make  the  goods.  If  more  things 
of  a  certain  sort  are  wanted,  then  more  men  able  to 
make  them  must  be  found.  If  I  buy  an  aneroid  baro- 
meter, I  use  up  the  labour  of  a  man  able  to  make  such 
a  barometer;  if  many  people  take  a  fancy  to  have 
aneroid  barometers,  and  only  a  few  workmen  have  the 
necessary  skill  to  make  them,  they  can  ask  a  high  price 
for  their  labour.  It  is  true  that  people  buying  baro- 
meters do  not  usually  pay  the  workmen  for  making 
them;  a  man  with  capital  gets  the  barometers  made 
beforehand  and  puts  them  in  shops  ready  for  sale. 
The  capitalist  advances  the  wages  of  the  workmen, 
but  this  is  only  for  a  few  weeks  or  months,  and 
according  as  the  demand  for  barometers  is  brisk  or 
slow,  he  employs  more  or  fewer  workmen.  Thus, 
demand  for  commodities  comes  to  nearly, 
though  not  quite,  the  same  thing  as  demand 


VIL]  WAGES.  57 

for  labour.     There  is  the  profit   of  the   capitalist 
to  be  considered  as  well ;  but,  with  this   exception, 
rates   of  wages   are   governed   by  the  same_ 
laws  of  supply  and  demand  as  the  prices  of 
goods. 

Anything,  then,  which  affects  the  numbers  of  men 
able  and  willing  to  do  a  particular  kind  of  work,  affects 
the  wages  of  such  men.  Thus  the  principal  circum- 
stance governing  wages  is  the  comparative  numbers  of 
persons  brought  up  with  various  degrees  of  strength, 
both  of  body  and  mind.  The  greater  number  of 
ordinary  men,  while  in  good  health,  have  sufficient 
strength  of  arms  and  legs  to  do  common  work ;  the 
supply  of  such  men  is  consequently  very  large,  and, 
unless  they  can  acquire  some  peculiar  knowledge  or 
skill,  they  cannot  expect  high  wages.  Dwarfs  and 
giants  are  ahyays  much  less  common  than  men  of 
average  size  ;  if  there  happened  to  be  any  work  of  im- 
portance which  could  only  be  done  by  dwarfs  or  giants, 
they  could  demand  high  wages.  Dwarfs,  however,  are 
of  no  special  use  except  to  exhibit  as  curiosities  ;  very 
large  strong  men,  too,"  are  not  generally  speaking  of 
any  particular  use,  because  most  heavy  work  is  now 
done  by  machinery.  They  can,  however,  still  get 
very  high  wages  in  hewing  coal,  or  puddling  iron, 
because  this  is  work,  requiring  great  strength  and 
endurance,  which  is  not  yet  commonly  done  by 
machinery.  Iron  puddlers  sometimes  earn  as  much  as 
^250  a  year. 

It  is  great  skill  and  knowledge  which  generally 
enable  a  man  to  earn  large  wages.  Rich  people  like 
to  get  the  best  of  everything,  and  thus  the  few  people  * 
who  can  do  things  in  the  best  possible  way  can  ask 
very  high  prices.  Almost  any  one  can  sing  badly ; 
but  hardly  any  one  can  sing  as  well  as  Mr.  Sims 
Reeves  :  thus  he  can  get  perhaps  £20  or  ^30  for 
every  song  which  he  sings.  It  is  the  same  with  the 
best  artists,  actors,  barristers,  engineers.  An  artist  is 
usually  his  own  capitalist,  for  he  maintains  himself  dur- 


58  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

ing  many  months,  or  even  years,  while  he  is  painting  a 
great  picture ;  if  he  succeeds  in  doing  it  excellently 
well,  he  can  sell  the  picture  for  thousands  of  pounds, 
because  there  are  many  rich  people  who  wish  to 
possess  good  pictures. 

45.  Adam  Smith  on  Wages.  There  are,  how- 
ever, various  circumstances  which  cause  wages  in  any 
particular  employment  to  be  higher  or  lower  than  in 
other  employments,  and  we  had  better  attend  to  what 
Adam  Smith  has  said  on  this  subject.  He  mentioned 
five  principal  circumstances  which  make  up  for  small 
wages  in  some  occupations,  and  balance  great  wages 
in  other  ones,  as  follows  : 

(i.)  The  Agreeableness  or  Disagreeableness 
of  the  Employments  .themselves.  If  an  em- 
ployment is  in  itself  comparatively  pleasant,  it  attracts 
many  who  would  not  otherwise  go  into  it  at  the 
current  wages.  Thus,  officers  of  the  army  and  navy 
are  not  on  the  average  highly  paid  ;  but  there  is  never 
any  difficulty  in  finding  men  willing  to  be  officers, 
because  the  work  is  thought  to  be  easy,  and  there  is 
honour  and  power  attaching  to  it.  On  the  other 
hand,  a  good  butcher  makes  high  wages,  because  his 
business  is  a  greasy  one,  besides  being  thought  to  be 
cruel,  and  a  clever  man  must  be  attracted  to  it  by 
good  earnings. 

(2.)  The  Easiness  and  Cheapness,  or  the 
Difficulty  and  Expense  of  learning  the  Occu- 
pation. This  circumstance  always  has  much  import- 
ance, because  the  greater  number  of  the  people  are 
poor,  and  are  consequently  unable  to  give  their 
children  a  long  good  education.  Thus,  the  larger 
part  of  the  young  men  who  grow  up  are  only  fit  for 
common  manual  employments,  and  therefore  get  low 
wages.  To  learn  a  profession,  like  that  of  an  architect 
or  engineer,  it  is  requisite  to  pay  a  high  premium,  and 
become  a  pupil  in  a  good  office,  and  then  there  are 
many  years  to  be  spent  in  practising  and  waiting 
before  profit  begins  to  be  made.  Hence  the  com- 


VIL]  WAGES.  59 

paratively  few  who  succeed  in  the  difficult  professions 
gain  very  high  wages. 

(3.)  The  Constancy  or  Inconstancy  of  Em- 
ployment. When  a  man  is  sure  of  being  employed 
and  paid  regularly  all  the  year  round,  he  is  usually 
willing  on  that  account  to  accept  a  less  rate  of  wages. 
Thus,  there  is  little  difficulty  in  finding  men  to  be 
policemen  at  about  25  shillings  a  week  ;  for  though 
they  have  to  go  on  duty  at  night,  and  their 
work  is  often  tedious  and  disagreeable,  yet  policemen 
are  nearly  sure  to  have  employment  as  long  as  they 
behave  well.  A  carpenter  or  bricklayer,  on  the  con- 
trary, is  sometimes  thrown  out  of  work,  and  becomes 
anxious  as  to  the  means  of  keeping  his  family. 
Masons  and  bricklayers,  who  cannot  work  during 
frosty  weather,  ought  of  course  to  have  higher  wages 
during  the  rest  of  the  year,  so  as  to  make  up  a  good 
average.  Dock-labourers,  who  are  simply  strong  men 
without  any  particular  skill,  earn  large  wages  when 
trade  is  brisk  and  many  ships  come  into  the  docks ;  at 
other  times,  when  trade  is  slack,  or  when  contrary 
winds  keep  ships  out  of  port,  they  often  fall  into 
destitution  through  want  of  employment. 

(4.)  The  Small  or  Great  Trust  which  must 
be  reposed  in  those  who  exercise  the  Em- 
ployments. This  circumstance  considerably  affects 
the  supply  of  people  suitable  for  certain  occupations. 
A  man  cannot  expect  to  get  employment  in  a  bank,  or 
in  a  jeweller's  shop,  unless  he  has  a  good  character. 
Nothing  is  more  difficult  than  for  a  person  convicted 
of  dishonesty  to  find  desirable  employment.  Thus,  a 
good  character  is  often  worth  a  great  deal  of  money. 
Honesty,  indeed,  is  so  far  common  that  it  does  not 
alone  command  high  wages ;  but  it  is  one  requisite. 
The  cleverest  man  would  never  be  made  the  manager 
of  a  large  business,  if  there  was  reason  to  think  that 
he  had  committed  fraud. 

(5.)  Lastly,  The  Probability  or  Improbability 
of  Success  in  Employments  greatly  affects 


60          PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

the  Wages  of  those  who  succeed.  In  some 
cases,  a  man  can  hardly  avoid  succeeding ;  if  he  once 
enlists,  he  is  made  into  a  soldier  whether  he  likes  it 
or  not.  Almost  all,  too,  who  become  clerks  in  banks, 
counting-houses,  or  public  offices,  can  succeed  in 
doing  some  of  the  work  required  in  such  offices. 
Accordingly  clerks  are  seldom  highly  paid.  But  of 
those  who  become  barristers,  only  a  few  have  the 
peculiar  knowledge,  tact,  and  skill  required  to  make 
them  successful ;  these  few  make  very  large'  gains, 
and  the  unsuccessful  men  have  to  seek  for  other 
employments. 

Some  occupations  are  very  badly  paid,  because 
they  can  be  taken  up  by  men  who  fail  in  other  work. 
Frequently  a  person  who  has  learnt  a  trade  or  profes- 
sion finds  that  he  is  unfit  for  it ;  in  other  cases,  there 
is  a  failure  in  the  demand  for  a  commodity,  which 
obliges  its  manufacturers  to  seek  other  work.  Such 
people  are  usually  too  old  and  too  poor  to  begin  again 
from  the  beginning,  and  learn  a  new  difficult  trade. 
Thus  they  have  to  take  to  the  first  work  they  can  do. 
Educated  men  who  have  not  been  successful  become 
secretaries,  house-agents,  insurance-agents,  small  wine 
merchants,  and  the  like.  Uneducated  men  have  to- 
drive  cabs,  or  go  into  the  army,  or  break  stones;  poor 
women  become  seamstresses,  or  go  out  charing. 
Here  again  we  see  the  need  of  leaving  everybody  at 
perfect  liberty  to  enter  any  trade  which  he  can  manage 
to  carry  on;  it  is  not  only  injurious  to  the  public,  but 
it  is  most  unfair  to  people  in  misfortune,  if  they  are 
shut  out  of  employments  by  the  artificial  restrictions 
of  those  who  already  carry  on  those  employments. 

46.  What  is  a  Fair  Day's  Wages  ?  It  is  a 
favourite  saying  that  a  man 'should  have  a  fair 
day's  wages  for  a  fair  day's  work;  but  this 
is  a  fallacious  saying.  Nothing,  at  first  sight, 
can  seern,  more  reasonable  and  just ;  but  when  you 
examine  its  meaning,  you  soon  find  that  there  is  no 
real  meaning  at  all  It  amounts  merely  to  saying,  that 


vii.]  WAGES.  6 1 

a  man  ought  to  have  what  he  ought  to 
have.  There  is  no  way  of  deciding  what  is  a  fair 
day's  wages.  Some  workmen  receive  only  a  shilling 
a  day ;  others  two,  three,  four,  or  five  shillings  ;  a  few 
receive  as  much  as  ten,  or  even  twenty  shillings  a 
day  j  which  of  these  rates  is  fair  ?  If  the  saying 
means  that  all  should  receive  the  same  fair^frages, 
then  all  the  different  characters  and  powers  of  men 
would  first  have  to  be  made  the  same,  and  exactly 
equalised.  We  have  seen  that  wages  vary  according  ^ 
to  the  laws  of  supply  and  demand,  and  as  long  as 
workmen  differ  in  skill,  and  strength,  and  the  kind  of 
goods  they  can  produce,  there  must  be  differences  of 
demand  for  their  products.  Accordingly,  there  is  no 
more  a  fair  rate  of  wages  than  there  is  a  fair  price  of 
cotton  or  iron.  It  is  all  a  matter  of  bargain ;  he  who' 
has  corn  or  cotton  or  iron  or  any  other  goods  in  his 
possession,  does  quite  right  in  selling  it  for  the  best 
price  he  can  get,  provided  he  does  not  prevent  other 
people  from  selling  their  goods  as  they  think  best 
So,  any  workman  does  quite  right  in  selling  his  labour 
for  the  highest  rate  of  wages  he  can  get,  provided  that 
he  does  not  interfere  with  the  similar  right  of  other 
workmen  to  sell  their  labour  as  they  like. 


CHAPTER  VIII. 
TRADES-UNIONS. 

47.  The  Purposes  of  Trades-Unions.  Work- 
ing-men commonly  think  that  the  best  way  to  raise 
their  earnings  is  to  form  trades-unions,  and  oblige 
their  employers  to  pay  better  wages.  A  trade s- 
union  is  a  society  of  men  belonging  to  any 
one  kind  of  trade,  who  agree  to  act  together 
as  they  are  directed  by  their  elected  council, 
and  who  subscribe  money  to  pay  the  ex- 
penses. Some  trades-unions  are  very  different  from 


62  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

others,  and  they  are  not  all  well  conducted  nor  all 
badly  conducted,  any  more  than  people  are  all  well 
behaved  or  all  badly  behaved.  Moreover,  the  same 
trades- union  often  does  different  kinds  of  business. 
Usually  they  act  as  benefit  or  friendly  societies,  that 
is  to  say,  if  a  member  of  a  trades-union  pays  his  sub- 
scription of  say  one  shilling  weekly,  together  with  an 
entrance-fee  and  other  small  payments,  he  has  a  right, 
after  a  little  time,  to  receive  say  twelve  shillings  a 
week  in  case  of  illness  j  he  gets  back  the  value  of  his 
tools  if  they  should  happen  to  be  burnt  or  lost ;  when 
thrown  out  of  work  he  will  enjoy  say  ten  shillings  a 
week  for  a  certain  length  of  time ;  if  he  is  so  unfor- 
tunate as  to  be  disabled  by  accident)  he  receives  a 
good  sum  of  money  as  an  accident  benefit;  and  when 
he  dies  he  is  buried  at  the  expense  of  the  union.  All 
these  arrangements  are  very  good,  for  they  insure  a 
man  against  events  which  are  not  usually  under  his 
own  control,  and  they  prevent  workmen  from  becom- 
ing paupers.  So  far  as  trades-unions  occupy  them- 
selves in  this  way,  it  is  impossible  not  to  approve  of 
them  very  warmly. 

Then,  again,  trades-unions  are  able  to  take  care  of 
their  members  by  insisting  that  employers  shall  make 
their  factories  wholesome  and  safe.  If  a  single  work- 
man were  to  complain  that  the  workshops  were  too 
hot,  or  that  a  machine  was  dangerous,  or  a  mine  not 
properly  ventilated,  he  would  probably  not  be  listened 
to,  or  would  be  told  to  go  about  his  business.  But  if 
all  the  workmen  complain  at  once,  and  let  it  be 
known  that  they  do  not  intend  to  go  on  working 
unless  things  are  made  better,  the  employer  will  think 
about  the  matter  seriously,  and  will  do  anything  that 
is  reasonable  to  avoid  disputes  and  trouble.  Every- 
body is  justified  in  taking  good  care  of  his  own  life 
and  health,  and  in  making  things  as  convenient  to 
himself  as  possible.  Therefore  we  cannot  find  fault 
_with  workmen  for  discussing  such  matters  among 
(  themselves,  and  agreeing  upon  the  improvements  they 


VIIL  ]  TRADES-UNIONS.  63 

think  right  to  demand.     It  is  quite  proper  that  they 
should  do  so. 

But  nobody  is  perfectly  wise,  and  those  who  have 
not  much  time  to  get  knowledge,  and  learn  science 
and  political  economy,  will  often  not  see  the  effects  of 
what  they  demand.  They  may  ask  for  something 
which  is  impossible,  or  would  cost  so  much  as  to  stop 
the  trade  altogether.  In  all  such  matters,  therefore, 
working-men  should  proceed  cautiously,  hearing  what 
their  employers  have  to  say,  and  taking  note  especially 
of  what  the  public  opinion  is,  because  it  is  the  opinion 
of  many  who  have  nothing  to  lose  or  gain  in  the 
matter. 

48.  The  Regulation  of  Hours.  One  of  the 
principal  subjects  of  dispute  is  usually  the  number  of 
hours  in  the  day  that  a  workman  should  work.  In 
some  trades  a  man  is  paid  by  the  hour  or  by  the  work 
done,  so  that  each  man  can  labour  a  longer  or  shorter 
time  as  he  prefers.  When  this  is  the  case,  each  man 
is  the  best  judge  of  what  suits  him,  and  no  trades-union 
ought  to  interfere.  But  in  factories,  generally  speak- 
ing, it  would  not  do  to  let  the  men  come  and  go 
when  they  liked ;  they  must  work  while  the  engines 
and  machines  are  moving,  and  while  other  men  need 
their  assistance.  Accordingly,  somebody  must  settle 
whether  the  factory  is  to  work  for  twelve,  or  ten,  or 
nine,  or  eight  hours  a  day.  The  employer  would 
generally  prefer  long  hours,  because  he  would  get 
more  work  and  profit  out  of  his  buildings  and 
machines,  and  he  need  not  usually  be  on  the  spot  all 
the  time  himself.  It  seems  reasonable,  then,  that  the 
workmen  should  have  their  opinion,  and  have  a  voice 
in  deciding  how  long  they  will  work. 

But  workmen  are  likely  to  be  mistaken,  and  imagine  , 
that  they  may  get  as  much  wages  for  nine  hours'  work 
as  for  ten.  They  think  that  the  employer  can  raise 
the  price  of  his  goods,  or  that  he  can  well  afford  to 
pay  the  difference  out  of  his  own  great  profits.  But 
if  political  economy  is  to  be  believed,  the  wages  ot 


64  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

workmen  are  really  the  value  of  the  goods  produced, 
after  the  necessary  rent  of  land  and  interest  of  capital 
have  been  paid.  If  factories,  then,  produce  less 
goods  in  nine  hours  than  in  ten,  as  is  usually  the  case, 
there  cannot,  in  the  long  run,  be  so  much  wages  to 
receive.  On  the  other  hand,  as  machinery  is  im- 
proved, labour  becomes  more  productive,  and  it  is 
quite  right  that  those  who  are  sufficiently  well  paid 
should  prefer,  within  reasonable  limits,  to  lessen  their 
hours  of  work  rather  than  increase  their  earnings. 
This  is  a  matter  which  depends  upon  many  considera- 
tions, and  it  cannot  be  settled  in  this  Primer.  What 
I  should  conclude  is,  that  when  workmen  want  to 
j  lessen  their  hours  of  work,  they  o.ught  not  to  ask  the 
same  wages  for  the  day's  work  as  before.  It  is  one 
thing  to  lessen  the  hours  of  work ;  it  is  another  thing 
to  increase  the  rate  of  wages  per  hour,  and  though 
both  of  these  things  may  be  rightly  claimed  in  some 
circumstances,  they  should  not  be  confused  together. 

49.  The  Raising  of  Wages.  The  principal 
object  of  trades-unions,  however,  is  to  increase  the 
rate  of  wages.  Working  men  seem  to  believe  that,  if 
they  do  not  take  care,  their  employers  will  carry  off  the 
main  part  of  the  produce,  and  pay  very  low  wages. 
They  think  that  capitalists  have  it  all  their  own  way 
unless  they  are  constantly  watched,  and  obliged  to 
pay  by  fear  of  strikes.  Employers  are  regarded  as 

_^  tyrants  who  can  do  just  as  they  like.  But  this  is 
altogether  a  mistake.  No  capitalists  can  for  more  than 
a  year  or  two  make  unusual  profits,  because,  if  they 
do,  other  capitalists  are  sure  to  hear  of  it,  :and  try  to 
do  likewise.  The  result  will  be  that  the  demand  for 
labourers  in  that  kind  of  trade  will  increase;  the 
capitalists  will  bid  against  each  other  for  workmen, 
and  they  will  not,  generally  speaking,  be  able  to  get 
enough  without  raising  the  rate  of  wages. 

There  is  no  reason  whatever  to  think  that  trades- 

^    unions  have  had  any 'permanent  effect  in  raising  wages 
in  the  majority  of  trades.     No  doubt  wages  are  now 


VTII.]  TRADES-UNIONS.  65 

i 

much  higher  than  they  were  thirty  or  forty  years  ago ; 
but  to  a  certain  extent  this  is  only  a  rise  of  money  wages, 
due  to  the  abundance  of  gold  discovered  in  California 
and  Australia.  The  rest  of  the  increase  can  be  easily 
accounted  for  by  the  great  improvements  in  machinery, 
and  the  general  prosperity  of  the  country.  It  is 
certain,  too,  that  the  increase  of  wages  is  not  confined 
to  those  trades  which  have  unions ;  even  common 
labourers  who  have  no  unions  receive  considerably 
more  money  wages  than  they  did,  and  domestic  ser- 
vants, who  never  strike  in  a  body,  but  simply  leave 
one  place  when  they  can  get  a  better,  have  raised  their 
own  wages  quite  as  much  as  any  union  could  have 
done  it  for  them. 

50.  Strikes  and  Lockouts.  Workmen  are 
said  to  strike,  that  is,  to  strike  work,  when  a 
number  of  them  agree  together  to  cease 
working  on  a  certain  day  for  certain  em- 
ployers, in  order  to  oblige  these  employers  to  pay 
better  wage's,  or  in  some  way  to  yield  to  their  demands. 
When  one  or  more  employers  suddenly  dismiss  their 
workpeople  altogether,  in  order  to  oblige  them  to  take 
lower  wages,  or  agree  to  some  alteration  of  work,  it 
is  called  a  lockout,  and  a  lockout  is  nearly  the 
same  as  a  strike  of  the  employers.  Strikes 
sometimes  last  for  many  months,  the  workmen  living 
on  what  savings  they  have,  and  on  contributions  sent 
to  them  by  workmen  or  unions  in  the  same  or  other 
trades.  The  employers  at  the  same  time  lose  much 
money  by  their  factories  standing  still,  and  they  some- 
times receive  aid  from  other  employers. 

There  is  nothing  legally  or  morally  wrong  in  a  strike 
or  lockout  when  properly  conducted.  A  man,  when 
free  from  promises  or  contracts,  has  a  right  to  work  or 
not  to  work,  as  he  thinks  best,  that  is  to  say,  the  law 
regards  it  as  beneficial  to  the  country,  on  the  whole, 
that  people  should  be  free  to  do  so.  Similarly,  em- 
ployers are  free  to  work  their  mills  or  not  as  they  like. 
Neither  employer*  nor  employed,  indeed,  must  break 


66  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

engagements ;  men  who  have  promised  to  work  to  the 
end  of  the  week  must  of  course  do  so ;  they  are  not 
free  till  their  promise  is  performed.  Again,  nobody 
should  be  allowed  suddenly  to  stop  work  in  a  way 
endangering  other  people.  Enginedrivers  and  guards 
in  America  sometimes  strike  when  a  train  is  halfway 
on  its  journey,  and  leave  the  passengers  to  get  to  the 
next  town  as  they  best  can.  This  is  little  better  than 
manslaughter.  Neither  the  owners  nor  the  workmen 
in  gasworks,  waterworks,  or  any  other  establishment 
on  which  the  public  depends  for  necessaries  of  life, 
should  be  allowed  suddenly  to  stop  work  without 
notice.  The  safety  of  the  public  is  the  first  considera- 
tion. The  law  ought  therefore  to  punish  those  who 
make  such  strikes. 

51.  The  General  Effect  of  Strikes.  There  is 
not  space  in  this  little  work  to  argue  the  matter  out  in 
detail,  but  I  have  not  the  least  doubt  that  strikes, 
on  the  whole,  produce  a  dead  loss  of  wages 
to  ^hose  who  strike,  and  to  many  others. 
I  believe  that  if  there  had  not  been  a  strike  during  the 
last  thirty  years,  wages  would  now  be  higher  in  general 
than  they  are,  and  an  immense  amount  of  loss  and 
privation  would  also  have  been  saved.  It  has,  in  fact, 
been  shown  by  Dr.  John  Watts  of  Manchester,  in  his 
"  Catechism  of  Wages  and  Capital,"  that  even  a  suc- 
cessful strike  usually  occasions  loss.  He  has  said, 
"  Allowing  for  accidental  stoppages,  there  will  not  be 
in  the  most  regular  trades  above  fifty  working  weeks 
in  the  year,  and  one  week  will  therefore  represent  two 
per  cent,  of  the  year.  If  a  strike  for  four  per  cent,  rise 
on  wages  succeeds  in  a  fortnight,  it  will  take  twelve 
months'  work  at  the  improved  rate  to  make  up  for  the 
lost  fortnight ;  and  if  a  strike  for  eight  per  cent,  lasts 
four  weeks,  the  workmen  will  be  none  the  richer  at 
the  end  of  twelve  months';  v  so  that  it  frequently 
happens  that,  even  when  a  strike  succeeds,  another 
revision  of  wages  takes  place  before  the  last  loss  is 
made  up;  a  successful  strike  is,  therefore,  like  a  sue- 


VIIL  ]  TRADES-UNIONS.  67 

cessful  lawsuit — only  less  ruinous  than  an  unsuccessful 
one."  If  we  remember  that  a  large  proportion  of 
strikes  are  unsuccessful,  in  which  case  of  course  there 
is  simple  loss  to  every  one  concerned ;  that  when  suc- 
cessful, the  rise  of  wages  might  probably  have  been 
gradually  obtained  without  a  strike ;  that  the  loss  by 
strikes  is  not  restricted  to  the  simple  loss  of  wages, 
but  that  there  is  also  injury  to  the  employers'  business 
and  capital,  which  is  sure  to  injure  the  men  also  in  the 
end ;  it  is  impossible  to  doubt  that  the  nett  result  of 
strikes  is  a  dead  loss.  The  conclusion  to  which  I  come 
is  that,  as  a  general  rule,  to  strike  is  an  act 
of  folly. 

52.  Intimidation  in  Strikes.  Those  who  strike 
work  have  no  right  to  prevent  other  workmen  from 
coming  and  taking  their  places.  If  there  are  unem- 
ployed people,  able  and  willing  to  work  at  the  lower 
wages,  it  is  for  the  benefit  of  everybody,  excepting  the 
strikers,  that  they  should  be  employed.  It  is  a  ques- 
tion of  supply  and  demand.  The  employer,  generally 
speaking,  is  right  in  getting  work  done  at  the  lowest 
possible  cost ;  and,  if  there  is  a  supply  of  labour  forth- 
coming at  lower  rates  of  wages,  it  would  not  be  wise  of 
him  to  pay  higher  rates. 

But  it  is  unfortunately  common  for  those  who  strike 
to  endeavour  to  persuade  or  even  frighten  workmen 
from  coming  to  take  their  places.  This  is  as  much  as 
to  claim  a  right  to  the  trade  of  a  particular  place,  which 
no  law  and  no  principle  gives  to  them.  A  strike  is 
only  proper  and  legal  as  long  as  it  is  entirely  voluntary 
on  the  part  of  all  concerned  in  refusing  to  work. 
When  a  striker  begins  to  threaten  or  in  any  way  pre- 
vent other  people  from  working  as  they  like,  he  com- 
mits a  crime,  by  interfering  with  their  proper  liberty, 
and  at  the  same  time  injuring  the  public.  Men  are 
free  to  refuse  to  labour,  but  it  is  absolutely  necessary 
to  maintain  at  the  same  time  the  freedom  of  other  men 
to  labour  if  they  like.  The  same  considerations,  of 
course,  apply  to  lockouts ;  no  employer  who  locks  out 


68  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

his  workmen  has  any  right  to  intimidate,  or  in  any  way 
to  oblige  other  employers  to  do  the  same.  No  doubt 
voluntary  agreements  are  made  between  employers, 
and  lockouts  are  jointly  arranged,  just  as  extensive 
strikes  are  arranged  beforehand.  If  any  employers 
were  to  go  beyond  this  and  threaten  to  injure  other 
employers  if  they  did  not  join  in  the  lockout,  they 
should  be  severely  punished.  But  such  a  case  seldom 
or  never  occurs.  Thus,  strikes  and  lockouts  are  proper 
only  as  mere  trials,  to  ascertain  whether  labour  will  be 
forthcoming  at  a  certain  rate  of  wages,  or  under 
certain  conditions. 

If  the  workmen  in  a  trade  are  persuaded  that  their 
wages  are  too  low,  then  a  strike  will  show  whether  it  is 
the  case  or  not ;  if  their  employers  find  them- 
selves unable  to  get  equally  good  workmen  at  the  same 
wages,  they  will  have  to  offer  more ;  but  if  equally 
good  can  be  got  at  the  old  rate,  then  it  is  a  proof  that 
the  strikers  made  a  mistake.  Their  wages  were  as 
good  as  the  state  of  trade  warranted.  It  is  all  a  matter 
of  bargain,  and  of  supply  and  demand.  Those  who 
strike  work  are  in  the  position  of  those  who,  having  a 
stock  of  goods,  refuse  to  sell  it,  hoping  to  get  a  better 
price.  If  they  make  a  mistake,  they  must  suffer  for  it, 
and  those  who  choose  to  sell  their  goods  in  the  mean- 
time will  have  the  benefit.  But  it  is  plain  that  it  would 
never  do  to  allow  one  holder  of  goods  to  intimidate  and 
prevent  other  holders  from  selling  to  the  public.  It  is 
worthy  of  consideration  whether  even  voluntary  com- 
binations of  dealers  should  not  be  prohibited,  because 
they  are  often  little  better  than  conspiracies  to  rob  the 
public.  The  good  of  consumers,  that  is,  of  the  whole 
people,  is  what  we  must  always  look  to,  and  this  is 
best  secured  when  men  act  freely  and  compete  with 
each  other  to  sell  things  at  the  cheapest  rates. 

53.  Trades-Union  Monopolies.  It  cannot  be 
denied  that,  in  certain  trades,  the  men  may  succeed  to 
some  extent  in  keeping  their  wages  above  the  natural 
level  by  union.  Wages,  like  the  prices  of  goods,  are 


VIIL]  TRADES-UNIONS.  69 

governed  by  the  laws  of  supply  and  demand.  Accor- 
dingly, if  the  number  of  hat-makers  can  be  kept  down 
it  reduces  the  number  of  hats  that  can  be  made,  raises 
their  prices,  and  enables  the  hat-makers  to  demand 
higher  wages  than  they  otherwise  could  do.  Many 
unions  try  thus  to  limit  production  by  refusing  to 
admit  more  than  a  fixed  number  of  apprentices,  and 
by  declining  to  'work  with  any  man  who  has  not  been 
brought  up  to  the  trade.  It  is  probable  that,  where  a 
trade  is  a  small  one,  and  the  union  powerful,  there 
may  be  some  success.  The  trade  becomes  a  monopoly, 
and  gets  higher  wages  by  making  other  people  pay 
dearer  for  the  goods  they  produce.  They  raise  a  tax 
from  the  rest  of  the  nation,  including  all  the  workmen 
of  other  trades.  This  is  a  thoroughly  selfish  and 
injurious  thing,  and  the  laws  ought  by  all  reasonable 
means  to  discourage  such  monopolies.  Moreover, 
monopoly  is  extremely  hurtful  in  the  long  run  to  the 
working  classes,  because  all  the  trades  try  to  imitate 
those  which  are  successful.  Finding  that  the  hatters 
have  a  strong  union,  the  shoemakers,  the  tailors,  and 
the  seamstresses  try  to  make  similar  unions,  and  to 
restrict  the  numbers  employed.  If  they  could  succeed 
in  doing  so,  the  result  would  be  absurd  ;  they  would 
all  be  trying  to  grow  richer  by  beggaring  ^ 
each  other.  As  I  have  pointed  out  in  the  Logic 
Primer  (section  177,  p.  117),  this  is  a  logical  fallacy, 
arising  from  the  confusion  between  a  general  and  a 
collective  term.  Because  any  trade  separately 
considered  may  grow  richer  by  taxing  other 
trades,  it  does  not  follow  that  all  trades  taken 
together,  and  doing  the  same  thing,  can  grow 
richer. 

No  doubt,  working  men  think  that,  when  their 
wages  are  raised,  the  increase  comes  out  of  the  pockets 
of  their  employers.  But  this  is  usually  a  complete 
mistake ;  their  employers  would  not  carry  on  business 
unless  they  could  raise  the  prices  of  their  goods,  and 
thus  get  back  from  purchasers  the  increased  sum  which 


7o  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

they  pay  in  wages.  They  will  even  want  a  little  more 
to  recompense  them  for  the  risk  of  dealing  with 
workmen  who  strike  at  intervals,  and  thus  interrupt 
business.  It  is  the  consumers  of  goods  who  ultimately 
pay  the  increased  wages,  and  though  wealthy  peopl  ; 
no  doubt  pay  a  part  of  the  cost,  it  is  mainly  the 
working  people  who  contribute  to  the  higher  wages  of 
some  of  their  own  class. 

The  general  result  of  trades-union  monopolies  to  the 
working  people  themselves  is  altogether  disastrous.  If 
one  in  a  hundred,  or  one  in  a  thousand  is  benefited, 
the  remainder  are  grievously  injured.  The  restrictions 
upon  work  which  they  set  up  tend  to  keep  men  from 
'doing  that  which  they  are  ready  and  willing  to  do. 
The  lucky  fatten  at  the  cost  of  those  whom  they  shut 
out  in  want  of  work,  and  the  strikes  and  interruptions 
of  trade,  occasioned  by  efforts  to  keep  up  monopolies, 
diminish  the  produce  distributed  as  wages. 

54.  Professional  Trades-Unions.  We  often 
hear  the  proceedings  of  trades-unions  upheld  on  the 
ground  that  lawyers,  doctors,  and  other  professional 
men  have  their  societies,  Inns  of  Court,  or  other  unions, 
which  are  no  better  than  trades-unions.  This  is  what 
may  be  called  a  tu  quoque  (thou  also)  argument.  "We 
v  may  form  unions  because  you  form  unions."  It  is  a 
poor  kind  of  argument  at  best ;  one  man  acting  un- 
wisely is  no  excuse  for  another  doing  so  likewise.  I 
am  quite  willing  to  allow  that  many  of  the  rules  of 
barristers  and  solicitors  are  no  better  than  those  of 
trades-unions.  That  a  barrister  must  begin  to  be  a 
barrister  by  eating  certain  dinners;  that  he  must  never 
take  a  fee  under  a  certain  amount;  that  he  must  never 
communicate  with  a  client  except  through  a  solicitor; 
that  a  senior  counsel  must  always  have  a  junior ;  and 
most  of  the  rules  of  the  so-called  etiquette  are  clearly 
intended  to  raise  the  profits  of  the  legal  profession. 
Many  things  of  this  kind  want  reform.  But,  on  the 
other  hand,  these  unions  avoid  many  of  the  faults  of 
trades-unions.  There  is  no  limit  to  the  number  of 


viii.  ]  TRADES-  UNIONS.  7 1 

persons  who  may  enter  them;  all  men  of  good  character 
and  sufficient  knowledge  can  become  barristers  and 
solicitors.  Moreover,  the  entrance  to  the  legal,  medical, 
and  several  other  professions  is  being  more  and  more 
regulated  by  examinations,  which  are  intended  purely 
to  secure  able  men  for  the  service  of  the  public.  Nor 
is  any  attempt  made  in  these  professional  trades-unions 
to  prevent  men  from  exerting  themselves  as  much 
as  they  can,  so  as  to  serve  the  public  to  the  utmost  of 
their  ability.  These  professional  trades-unions  are  thus 
free  from  some  of  the  evils  which  other  unions  produce. 

55.  The  Fallacy  of  Making  Work.  One  of  the 
commonest  and  worst  fallacies  into  which  people  fall 
in  political  economy  is  to  imagine  that  wages  may  be 
increased  by  doing  work  slowly,  so  that  more  hands 
shall  be  wanted.  Workmen  think  they  see  plainly  that 
the  more  men  a  job  requires,  the  more  wages  must  be 
paid  by.  their  employers,  and  the  more  money  comes 
from  the  capitalists  to  the  labourers.  It  seems,  there- 
fore, that  any  machine,  invention,  or  new  arrangement 
which  gets  through  the  work  more  quickly  than  before, 
tends  to  decrease  their  earnings.  With  this  idea, 
bricklayers'  labourers  refuse  (or  did  lately  refuse)  to 
raise  bricks  to  the  upper  parts  of  a  building  by  a  rope 
and  winch;  they  preferred  the  old,  laborious,  and 
dangerous  mode  of  carrying  the  bricks  up  ladders  in 
hods,  because  the  work  then  required  more  hands. 
Similarly,  brickmakers  refused  to  use  any  machinery ; 
masons  totally  declined  to  set  stones  shaped  and 
dressed  by  machinery;  some  compositors  still  object 
to  work  in  offices  where  type-composing  machines  are 
introduced.  They  are  all  afraid  that  if  the  work  is 
done  too  easily  and  rapidly,  they  will  not  be  wanted 
to  do  it ;  they  think  that  there  will  be  more  men  than 
there  are  berths  for,  and  so  wages  will  fall.  In  almost 
every  case  this  is  an  absurd  and  most  unfortunate 
mistake. 

No  doubt,  if  men  insist  on  sticking  to  a  worse  way 
of  doing  work  after  a  better  one  has  been  invented, 


72  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

they  may  get  bad  wages,  and  perhaps  go  to  the  work- 
house in  old  age.  Thus,  the  hand-weavers  in  Spital- 
nelds  would  continue  weaving  by  hand,  instead  of 
learning  to  weave  by  steam  power,  and  the  case 
is  somewhat  the  same  with  the  hand-nailers  of  South 
Staffordshire.  But  when  the  younger  workmen  of  a 
trade  are  wise  and  foreseeing  enough  to  adopt  a  new 
invention  as  soon  as  it  is  successful,  they  are  never 
injured,  and  usually  much  benefited  by  it.  Seam- 
stresses in  England  received  wretchedly  poor  wages 
before  the  introduction  of  the  American  sewing 
machine,  and  they  thought  they  would  be  starved 
altogether  when  the  same  work  could  be  done  twenty 
times  as  fast  by  machine  as  by  hand.  The  effect, 
however,  has  been  just  of  the  opposite  kind.  Those 
who  were  not  young,  skilful  or  wise  enough  to  learn 
machine-sewing,  receive  better  wages  for  hand-sewing 
than  they  would  formerly  have  done.  The  machine 
sewers  earn  still  more,  as  much  in  many  cases  as 
2  os.  a  week.  The  explanation  of  this  is  that,  when 
work  is  cheapened,  people  want  much  more  of  it. 
When  sewing  can  be  done  so  easily,  more  sewing  is 
put  into  garments,  and  the  garments  being  cheapened, 
more  are  bought.  At  the  same  time  a  good  deal  of 
the  sewing,  and  finishing,  and  fitting,  cannot  be  done 
by  machinery,  and  this  furnishes  plenty  of  employment 
for  those  who  cannot  work  machines. 

If  masons  were  to  employ  machines  for  cutting 
stone,  they  would  be  benefited  like  the  seamstresses, 
instead  of  being  injured.  The  cost  of  cutting  stone 
by  hand  is  now  so  great  that  people  cannot  build 
many  stone  buildings,  nor  use  stone  to  decorate  brick 
buildings,  unless  they  are  wealthy  people.  Were  the 
dressing  of  stone  much  cheapened  by  the  aid  of 
machinery,  a  great  deal  more  stone  would  be  used, 
and  the  masons,  instead  of  labouring  at  the  dull  work 
of  cutting  flat  surfaces,  would  find  plenty  of  employ- 
ment in  finishing,  and  carving,  and  setting  the  machine- 
shaped  stones.  I  have  not  the  least  doubt  that,  in 


VIIL]  TRADES-UNIONS.  73 

addition  to  those  engaged  in  working  the  machines, 
there  would  in  the  end  be  more  masons  wanted  after 
the  general  introduction  of  machines  than  before. 
With  type-setters  the  same  thing  will  happen,  if  they 
take  betimes  to  the  new  type-composing  machines.  It 
is  true  that  a  man  with  the  aid  of  a  good  machine  can 
set  types  several  times  as  fast  as  without.  But  though 
the  wages  paid  for  setting  a  certain  number  of  types 
might  thus  be  reduced,  so  many  more  books, 
pamphlets,  newspapers,  and  documents  of  various 
kinds  would  be  printed,  that  no  want  of  employment 
could  be  felt.  Much  of  the  work,  too,  such  as  the 
justifying,  correcting,  making  into  pages,  &c.,  cannot 
be  done  by  machinery,  or  not  profitably,  so  that  there 
would  be  plenty  of  work  even  for  those  who  would 
not  consent  to  work  machines. 

The  fact  is  that  wages  are  increased  by  in-^ 
creasing  the  produce  of  labour,  not  by  de- 
creasing the  produce.  The  wages  of  the  whole 
working  population  consist  of  the  total  produce  re- 
maining after  the  subtraction  of  rent,  interest,  and! 
taxes.  People  get  high  wages  in  Lancashire  because) 
they  use  spinning  machinery,  which  can  do  an  immense 
quantity  of  work  compared  with  the  number  of  hands 
employed.  If  they  refused  to  use  machinery,  they 
would  have  to  spin  cotton  by  hand  like  the  poor  in- 
habitants of  Cashmere.  Were  there  no  machinery  of 
any  kind  in  England  we  should,  nearly  all  of  us,  be  as 
poor  as  the  agricultural  labourers  of  Wiltshire  lately 
were. 

People  lose  sight  ot  the  fact  that  we  do  not  work 
for  the  sake  of  working,  but  for  the  sake  of 
what  we  produce  by  working.  The  work  itself 
is  the  disagreeable  price  paid  for  the  wages  earned, 
and  these  wages  consist  of  the  greater  part  of  the  value 
of  the  goods  produced.  It  is  absurd  to  suppose  that 
people  can  become  richer  by  having  less  riches.  To 
become  richer  we  must  make  more  riches,  and  the 
object  of  every  workman  should  be  not  to  make  work, 


74  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

but  to  make  goods  as  rapidly  and  abundantly  as  pos- 
sible. 

56.  Piece- Work.  Some  trades  unions  endeavour 
to  prevent  their  members  from  earning  wages  by  piece 
work,  that  is,  by  payment  for  the  quantity  of  work 
done,  instead  of  payment  for  the  time  spent  in  doing 
it.  If  a  man  is  paid  tenpence  an  hour,  whether  he 
work  quickly  or  slowly,  it  is  evidently  for  his  interest 
to  work  slowly  rather  than  quickly,  provided  that  he  be 
not  so  lazy  as  to  run  a  risk  of  being  discharged.  It  is 
a  well  known  fact  that  men  employed  on  piece-work 
do  much  more  work  in  the  same  time  than  those  em- 
ployed on  time  jobs,  and  it  is  altogether  better  that 
they  should  be  paid  by  the  piece  when  the  work  done 
can  be  exactly  measured  and  paid  for.  The  men  earn 
better  wages  because  they  are  incited  to  do  so  much 
more,  and  they  earn  it  more  fairly,  as  a  general  rule. 
Trades-unions,  however,  sometimes  object  to  piece- 
work, the  reason  given  being  that  it  makes  the  men 
work  too  hard,  and  thus  injures  their  health.  But  this 
is  an  absurd  reason ;  for  men  must  generally  be  sup- 
posed capable  of  taking  care  of  their  own  health. 
There  are  many  trades  and  professions  in  which  people 
are  practically  paid  by  the  piece,  but  it  is  not  found 
necessary  to  have  trades-unions  to  keep  them  from 
killing  themselves.  There  is  more  fear  that  people 
will  work  too  little  rather  than  too  much. 

The  real  objection  which  trades-unionists  feel  to 
piece-work  is  that  it  gets  the  work  done  quickly,  and 
thus  tends,  as  they  think,  to  take  employment  away  from 
other  men.  But,  as  I  have  already  explained,  men  do 
not  work  for  the  sake  of  working,  but  for  the  sake  oi 
what  they  produce,  and  the  more  men  in  general  pro- 
duce, the  higher  wages  in  general  will  be.  Trades- 
unionists  put  forward  their  views  on  the  ground  of  un- 
selfishness. They  would  say  that  it  is  selfish  of  Tom 
to  work  so  as  to  take  away  employment  from  Dick  and 
Harry;  but  they  overlook  the  thousands  of  Toms, 
Dicks,  and  Harrys  in  other  employments  who  get 


viii.]  TRADES-UNIONS.  75 

small  wages  indeed,  and  who  are  perhaps  prevented 
by  their  rules  from  earning  more.  If  the  nation  as  a 
whole  is  to  be  wealthy  and  happy,  we  must  each  of  us 
work  to  the  best  of  our  powers,  producing  the  wealth 
which  we  can  best  produce,  and  not  grudging  others 
a  greater  success,  it  Providence  has  given  them  superior 
powers.  People  can  seldom  produce  wealth  for  them- 
selves without  spreading  a  greater  benefit  over  society 
in  general,  by  cheapening  commodities  and  lightening; 
toil. 

57.  The  Fallacy  of  Equality.  Workmen  often 
show  a  dislike  to  allowing  one  man  to  earn  more  than 
another  in  the  same  shop,  and  at  the  same  kind  of 
work.  This  feeling  is  partly  due  to  the  mistaken 
notion  that  in  doing  more  work  than  others  he  takes 
employment  from  them.  It  partly,  however,  arises 
from  a  dislike  to  see  one  man  better  off  than  his 
mates.  This  feeling  is  not  confined  to  workmen. 
Any  one  who  reflects  upon  the  state  of  society  must 
regret  that  the  few  are  so  rich,  and  the  many  so  poor. 
It  might  seem  that  the  laws  must  be  wrong  which  allow^ 
such  differences  to  exist.  It  is  needful  to  reflect, 
therefore,  that  such  differences  ot  wealth  are  not  for" 
the  most  part  produced  by  the  laws.  All  men,  it  has 
been  said,  are  born  free  and  equal ;  it  is  difficult  to 
see  how  they  can  be  born  free,  when,  for  many  years 
after  birth,  they  are  helpless  and  dependent  on  their 
parents,  and  are  properly  under  their  governance. 
No  doubt  they  ought  to  become  free  when  grown  up,, 
but  then  they  are  seldom  equal.  One  youth  is  stout,, 
healthy  and  energetic  ;  another  puny  and  weak  ;  one- 
bright  and  intelligent ;  another  dull  and  slow.  Over 
these  differences  of  body  and  mind  the  laws  have  no- 
power.  An  Act  of  Parliament  cannot  make  a  weak 
frame  strong.  It  follows  that  in  after  life  some  men 
must  be  capable  of  earning  more  than  others.  Out  of 
every  thousand  men  and  women,  too,  there  will  be  a 
few  who  are  distinguished  by  remarkable  talents  or 
inventive  genius.  One  man  by  patient  labour  and. 


76       '    PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

great  sagacity  invents  a  sewing  machine,  a  telegraph, 
or   a   telephone,   and    he    thus    confers    the   greatest 
possible  advantage  upon  other  men  for  centuries  after. 
It    is    obviously  to    the   advantage    of   everybody 
that   those   who   are    capable    of   benefiting    society 
should  be  encouraged  to  do  so  by  giving   them   all 
the  reward  possible,   by  patents,  copyright,  and   the 
laws  of  property  generally.     To  prevent  or  discourage 
a  clever  man  in  doing  the  best  work  he  can,  is  cer- 
tainly no  benefit  to  other  men.     It  tends  to  level  all 
down   to    a   low    standard,    and    to    retard    progress 
altogether.     Every  man,  on  the  contrary,  who  is  in- 
cited to  work,  and  study,  and  invent  to  the  utmost 
of  his  powers,  not  only  earns  welfare  for  himself,  but 
confers  welfare  upon  other  people.     He  shows  how 
wealth  may  be  created  abundantly,  and  how  toil  may 
be  lessened.     What  is  true  of  great  ability  and  great 
inventions  is  true,  also,  of  the  smallest  differences  of 
power  or  the  slightest  improvements.     If  one  brick- 
layer's labourer  can  carry  up  more  bricks  than  another, 
why  should    he   be   prevented  from  doing  it  ?     The 
ability  is  his  property,  and  it  is  for  the  benefit  of  all 
that  he  should  be  allowed  to  use  it.     If  he  finds  a 
better  way  of  carrying  bricks,  of  course  it  should  be 
adopted  in  preference  to  worse  ways.     The  purpose 
•of  carrying  bricks  is  to   get  them  carried  and  benefit 
those  who  want  houses.       Everything  which  makes  it 
•difficult  and  expensive  to  build  houses,  causes  people 
to   be   lodged   worse    than  they  otherwise  would  be. 
|  We  can  only  get  things   made   well   and   cheaply  if 
\  'every  man  does  his  best,  and  is  incited  to  do  so  by 
vgaining  the  reward  of  his  excellence. 
/,     Every  man  then  should  not  only  be  allowed,  but 
I  should  be  encouraged   to  do  and  to  earn  all  that  he 
lean ;  we  must  then  allow  the  greatest  inequalities  of 
Vwealth  ;  for  a  man  who  has  once  begun  to  grow  rich, 
jacquires    capital,  and   experience,  and   means  which 
piable  him  to  earn  more  and  more.     Moreover,  it  is 
altogether  false    to   suppose    that,  as  a  general  rule, 


viii.]  TRADES-UNIONS.  77 

he  does  this  by  taking  wealth  from  other  people.  On 
the  contrary,  by  accumulating  capital,  by  building 
mills,  warehouses,  railways,  docks,  and  by  skilfully 
organising  trades,  he  often  enables  thousands  of  men 
to  produce  wealth,  vand  to  earn  wages  to  an  extent 
before  impossible.  The  profits  of  a  capitalist  are 
usually  but  a  small  fraction  of  what  he  pays  in  wages, 
and  he  cannot  become  rich  without  assisting  many 
workmen  to  increase  the  value  of  their  labour  and  to 
earn  a  comfortable  subsistence. 


CHAPTER   IX. 
CO-OPERATION,  &c. 

58.  Arbitration.  We  have  now  considered  at 
some  length  the  evils  arising  from  the  present  separa- 
tion of  interests  between  the  employed  and  their 
employers.  The  next  thing  is  to  discuss  the  various 
attempts  which  have  been  made  to  remedy  these  evils, 
and  to  bring  labour  and  capital  into  harmony  with 
each  other.  In  the  first  place,  many  people  think 
that  when  any  dispute  takes  place,  arbitrators  or 
judges  should  be  appointed  to  hear  all  that  can  be 
said  on  both  sides  of  the  question,  and  then  decide 
what  the  rate  of  wages  is  to  be  for  some  time  to  come. 

No  doubt  a  good  deal  may  be  said  in  favour  of 
such  a  course,  but  it  is  nevertheless  inconsistent  with 
the  principles  of  free  labour  and  free  trade.  If  the 
judges  are  to  be  real  arbitrators,  they  must  have 
power  to  compel  obedience  to  their  decision,  so 
that  they  will  destroy  the  liberty  of  the  workman  to 
work  or  not  as  he  likes,  and  of  the  capitalist  to  deal 
freely  with  his  own  capital,  and  sell  goods  at  whatever 
price  suits  the  state  of  the  market.  If  wages  are  to ; 
be  arbitrarily  settled  in  this  way,  there  is  no  reason 
why  the  same  thing  should  not  be  done  with  the  prices 
of  com,  iron,  cotton,  and  other  goods.  But  legislators 
have  long  since  discovered  the  absurdity  of  attempting 


7  8  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

to  fix  prices  by  law.  These  prices  depend  entirely 
upon  supply  and  demand,  and  no  one  is  really  able  to 
decide  with  certainty  what  will  be  the  conditions  of 
supply  and  demand  a  month  or  two  hence.  Govern- 
ment might  almost  as  wisely  legislate  about  the 
weather  we  are  to  have  next  summer  as  about  the 
state  of  trade,  which  much  depends  upon  the  weather, 
or  upon  wars  and  accidents  of  various  kinds,  which 
no  one  can  foresee.  It  is  impossible,  then,  to  fix 
prices  and  wages  beforehand  by  any  kind  of  law  or 
compulsory  decision.  The  matter  is  one  of  bargain, 
of  buying  and  selling,  and  the  employer  must  be  at 
liberty  to  buy  the  labour  required  at  the  lowest  price 
at  which  he  can  get  it,  and  the  labourers  to  sell  their 
labour  at  the  highest  price  they  can  get,  both  subject 
of  course  to  the  legal  notice  of  a  week  or  fortnight. 

59.  Conciliation.  Though  the  compulsory  fixing 
of  wages  is  evidently  objectionable,  much  good  may 
be  done  by  conciliators,  who  are  men  chosen  to 
conduct  a  friendly  discussion  of  the  matters  in  dispute. 
The  business  is  arranged  in  various  ways ;  sometimes 
three  or  more  delegates  of  the  workmen  meet  an 
equal  number  of  delegates  from  the  masters,  who 
place  before  the  meeting  such  information  as  they 
think  proper  to  give,  and  then  endeavour  to  come  to 
terms.  In  other  cases  the  delegates  lay  their  respective 
views  before  a  man  of  sound  and  impartial  judgment, 
who  then  endeavours  to  suggest  terms  to  which  both 
sides  can  accede.  If  the  two  parties  previously  engage 
that  they  will  accept  the  decision  of  this  conciliator  or 
umpire,  the  arrangement  differs  little  from  arbitration, 
except  that  there  is  no  legal  power  to  compel  com- 
pliance with  the  decision.  Discredit  has  been  thrown 
upon  this  form  of  conciliation  by  the  fact  that  the 
workmen  have  in  several  instances  refused  to  abide  by 
the  award  of  the  umpire  when  given  against  them,  and 
of  course  it  cannot  be  expected  that  masters  will 
accept  adverse  decisions  as  binding  under  such  cir- 
cumstances. Thus  I  am  led  to  think  that  the  con- 


ix.  ]  CO-  OPERA  TION.  7  9 

ciliator  should  not  attempt  to  be  a  judge ;  be  should 
be  merely  an  impartial  friend  of  both  sides,  trying  to 
remove  misapprehension  and  hostile  feelings,  enlight- 
ening each  party  as  to  the  views  and  reasons  and 
demands  of  the  other — acting,  in  short,  as  a  go- 
between,  and  smoothing  down  the  business  as  oil 
eases  the  movement  of  a  machine.  The  final  settle- 
ment must  take  the  form  of  a  voluntary  bargain 
directly  between  the  employers  and  employed,  which 
will  only  have  compulsory  effect  during  the  week  or 
fortnight  for  which  workmen  usually  enter  into  a  legal 
agreement.  Conciliation  may  in  this  way  do  much 
good,  but  it  cannot  remove  the  causes  of  difference — 
it  cannot  make  the  men  feel  that  their  interest  is 
one  with  the  interest  of  their  employers. 

60.  Co-operation.  Among  the  measures  pro- 
posed for  improving  the  position  of  workmen,  the  best 
is  co-operation,  if  we  understand  by  this  name  the 
uniting  together  of  capital  and  labour.  The 
name  co-operation  is  used  indeed  with  various  mean- 
ings, and  some  of  the  arrangements  called  by  it  have 
really  nothing  to  do  with  what  we  are  now  considering. 
To  co-operate  means  to  work  together  (Latin, 
con,  together,  and  operor,  to  work).  About  thirty-five 
years  ago  some  workmen  of  Rochdale,  noticing  the 
great  profits  made  by  shopkeepers  in  retail  trade, 
resolved  to  work  together  by  buying  their  own  supplies 
wholesale,  and  distributing  them  amongst  the  members 
of  the  society  which  they  established.  They  called 
this  a  co-operative  society,  and  a  great  number 
ot  so-called  co-operative  stores  have  since  been  estab- 
lished. Most  of  these  are  nothing  but  shops  belonging 
to  a  society  of  purchasers,  who  agree  to  buy  at  the 
store  and  divide  the  profits.  They  have  on  the  whole 
done  a  great  deal  of  good  by  leading  many  men  to 
save  money  and  to  take  an  interest  in  the  management 
of  affairs.  The  stores  are  also  useful,  because  they 
compete  with  shopkeepers,  and  induce  them  to  lower 
their  prices  and  to  treat  their  customers  better.  We 


So  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

frequently  hear  now  of  shops  selling  goods  at  co- 
operative prices. 

But  such  co-operative  societies  have  little  or  nothing 
to  do  with  the  subject  of  capital  and  labour.  Com- 
monly these  stores  are  conducted  less  upon  the  true 
co-operative  principle  than  ordinary  shops.  A  shop 
is  usually  managed  by  the  owner  or  by  a  man  who  has 
a  large  interest  in  its  success,  and  has  the  best  reasons 
for  taking  trouble.  Co-operative  stores,  on  the  con- 
trary, are  often  managed  by  men  who  are  paid  by 
salary  or  wages  only,  and  have  nothing  to  do  with  the 
profits  and  the  capital  of  the  concern. 

Real  co-operation  consists  in  making  all 
those  who  work  share  in  the  profits.  At 
present  a  workman  sells  his  labour  for  the  best  price 
he  can  get,  and  has  nothing  further  to  do  with  the 
results.  If  he  does  his  work  well,  his  master  gets  the 
benefit,  and  if  he  works  badly  his  master  is  injured. 
It  is  true  that  he  must  not  be  very  lazy  or  negligent 
for  fear  of  being  discharged;  but  if  he  takes  care  to 
be  moderately  careful  and  active,  it  is  all  that  he  need 
do  for  his  own  interests.  No  doubt  it  would  be  a 
good  thing  to  reward  the  more  active  workmen  with 
higher  wages,  and  a  wise  employer  endeavours  to  do 
this  when  he  can,  and  to  put  the  best  workmen  into 
the  best  places.  But  the  trades-unions  usually  pre- 
vent it  as  far  as  they  can,  by  insisting  that  men  doing 
the  same  kind  of  work  in  the  same  place  shall  be  paid 
alike.  Moreover,  as  we  have  seen,  many  men  are 
under  the  mistaken  belief  that  if  they  work  hard  they 
decrease  the  demand  for  employment,  and  tend  to 
take  away  the  bread  from  their  fellow-men.  Thus  it 
is  not  uncommon  for  workmen  to  study  how  not  to 
do  the  work  too  quickly,  instead  of  striving  to 
make  the  most  goods  in  the  least  time  with  the  least 
trouble.  Workmen  do  not  see  that  what  they  produce 
forms  in  the  long  run  their  wages,  so  that  if  all 
workmen  could  be  incited  to  activity  and  carefulness, 
wages  would  rise  in  all  trades. 


ix.  ]  CO-  OPERA  TION.  8 1 

6 1.  Industrial  Partnerships.  The  best  way 
of  reconciling  labour  and  capital  would  be  to  give 
every  workman  a  share  in  the  profits  of  his  factory 
when  trade  is  so  prosperous  as  to  allow  of  it.  Charles 
Babbage  proposed,  in  the  year  1832,  that  a  part  of  ^ 
the  wages  of  every  person  employed  should  depend 
on  the  profits  of  the  employers.  In  recent  years  this 
has  been  tried  in  several  large  works,  especially  in 
Messrs.  Briggs'  collieries,  and  in  Messrs.  Fox,  Head 
&  Co.'s  iron-works.  The  arrangement  generally  made 
with  the  men  was  that  the  capitalists  should  first  take 
enough  of  the  profits  to  pay  10  per  cent,  interest  on 
the  capital,  together  with  fair  salaries  for  the  managers  i/ 
as  wages  of  superintendence,  a  sum  to  meet  bad 
debts,  the  repairs  and  depreciation  of  the  machinery, 
and  all  other  ordinary  causes  of  loss.  Such  profit  as 
remained  was  then  divided  into  two  equal  parts,  one 
of  which  went  to  the  employers,  while  the  other  was 
divided  among  the  workpeople  in  proportion  to  the  , 
amounts  of  wages  which  they  had  received  during  the 
year.-  Many  workmen  under  such  a  scheme  found 
themselves  at  Christmas  in  possession  of  five  or  ten 
pounds,  in  addition  to  the  ordinary  wages  of  the  trade 
received  weekly  during  the  year. 

This  kind  of  co-operation  has  been  called  indus- 
trial partnership,  and,  if  it  could  be  widely  carried 
into  effect,  there  would  arise  many  advantages.  The 
workmen,  feeling  that  their  Christmas  bonuses  de- 
pended upon  the  success  of  the  works,  would  not 
favour  idleness,  and  would  have  some  inducement  for 
preventing  needless  waste  whether  of  time  or  ma- 
terials. By  degrees  they  would  learn  that  the  best 
trades-union  is  a  union  with  their  employers. 
Strikes  and  lock-outs  would  be  for  the  most  part  a 
thing  of  the  past,  because,  if  wages  were  too  low,  the 
balance-sheet  would  prove  the  fact  at  the  end  of  the 
year,  and  half  the  surplus  would  go  to  the  workmen. 
To  be  free  from  the  danger  of  strikes  would  be  a  very 
great  advantage  to  the  employers,  and  any  portion  of 


82  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

profits  which  they  might  seem  to  give  up  would  be 
more  than  repaid  by  the  increased  care  and  activity 
of  the  workmen.  The  employers  would  continue  to 
manage  the  business  entirely  according  to  their  own 
judgment,  and  they  need  not  make  their  affairs  or 
accounts  known  to  the  men.  All  that  is  requisite  is 
that  skilful  accountants  should  examine  the  books  at 
the  end  of  the  year,  and  certify  the  amount  of  profits 
due  to  the  men.  If  this  plan  were  thoroughly  carried 
out,  the  men  would  feel  that  they  were  really  working 
for  themselves  as  much  as  for  their  masters,  and  the 
troubles  which  at  present  exist  would  be  nearly  un- 
known. 

There  are  great  difficulties  in  the  way  of  this  kind 
of  co-operation :  most  capitalists  do  not  like  it,  be- 
cause they  needlessly  fear  to  make  known  their  profits 
to  their  men,  and  they  do  not  understand  the  advan- 
tages which  would  arise  from  a  better  state  of  things. 
The  workmen  also  do  not  like  the  arrangement, 
because  the  trades-unions  oppose  co-operation,  fearing 
that  it  will  overthrow  their  own  power.  Where  the 
scheme  has  been  tried,  it  has  usually  succeeded  well, 
until  the  men,  urged  by  their  trades-unions,  refused  to 
go  on  with  it.  Thus  are  people,  through  prejudice 
and  want  of  knowledge,  made  blind  to  the  best 
interests  of  themselves  and  the  country. 

It  is  to  be  feared,  then,  that  industrial  partnerships 
will  not  make  much  progress  just  at  present,  so  great 
is  the  dislike  to  them  felt  both  by  trades-unions  and 
by  prejudiced  employers.  Nevertheless,  the  arrange- 
ment is  in  accordance  with  the  principles  of  political 
economy,  and  it  will  probably  be  widely  adopted  by 
some  future  generation.  Already,  indeed,  many  banks, 
mercantile  firms,  and  public  companies  practically 
recognise  the  value  of  the  principle,  by  giving  bonuses 
or  presents  to  their  clerks  at  the  end  of  a  profitable 
year.  A  French  railway  company  adopted  this  practice 
forty  years  ago,  and  as  business  falls  more  and  more 
into  the  hands  of  companies  whose  profits  are  matters 


ix.]  CO-OPERATION.  83 

of  general  knowledge,  there  seems  to  be  no  reason 
whatever  why  the  principle  of  industrial  partnership 
should  not  be  adopted.  Somewhat  the  same  principle 
is  said  to  be  carried  into  effect  in  the  very  extensive 
and  successful  newspaper  business  of  Messrs.  W. 
H.  Smith  &  Son. 

62.  Joint-Stock  Co-operation.  Another  mode 
of  co-operation  consists  in  working  men  saving  up  their 
wages  until  they  have  got  small  capitals,  so  that  they 
can  unite  together  and  own  the  factories,  machines, 
and  materials  with  which  they  work.  They  then 
become  their  own  capitalists  and  employers,  and 
secure  all  the  profit  to  themselves.  Co-operative 
societies  of  this  kind  are  simply  Joint-Stock  Com-  _ 
panics,  the  shares  of  which  are  held  by  the  men  ~~ 
employed.  Of  course  the  shareholders  must  choose 
directors  from  among  themselves,  and  they  must  also 
have  managers  to  arrange  the  business.  The  managers 
and  directors  ought  to  be  well  paid  for  what  they  do, 
and  have  a  considerable  share  of  the  profits,  in  order 
to  make  them  interested  in  the  success  of  the  works, 
and  therefore  active  and  careful.  Incompetent  or 
negligent  management  will  soon  ruin  the  best  business. 

A  great  number  of  co-operative  companies  of  this 
kind  have  been  formed  in  the  last  twenty  years  in 
England,  France,  America,  and  elsewhere ;  but  most 
of  them  have  failed  from  want  of  good  direction.  The 
working-men  shareholders  do  not  generally  understand 
what  a  great  deal  of  skill  and  judgment  is  required  in 
the  conduct  of  a  business;  they  are  accustomed  to 
see  work  going  on  as  if  it  went  of  its  own  accord,  but 
they  do  not  see  the  constant  anxiety  and  the  careful 
calculation  which  is  requisite  to  make  the  work  profit- 
able. Hence  they  usually  fail  to  secure  good  man- 
agers, and  they  do  not  sufficiently  trust  those  whom 
they  appoint.  Moreover,  many  of  the  so-called  co- 
operative companies  are  not  really  co-operative  ;  they 
frequently  employ  men  who  are  neither  shareholders 
nor  receivers  of  a  share  of  profits,  and  they  pay  their 


84  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

managers  by  a  small  fixed  salary.  Such  co-oper- 
ative societies  are  badly-managed  joint-stock 
companies,  and  cannot  be  expected  to  suc- 
ceed well. 

Another  difficulty  with  such  companies  is,  that  they 
rarely  have  enough  capital,  and,  when  bad  trade 
comes,  they  are  unable  to  bear  the  losses  which  will 
sometimes  occur  for  several  years  in  succession.  They 
can  borrow  money  by  the  mortgage  of  the  buildings 
and  machinery  belonging  to  the  company,  and  this  is 
usually  done ;  but  no  banker  will  give  credit  to  such 
companies  without  the  security  of  fixed  property. 
Thus  they  frequently  fail  when  bad  trade  comes,  and 
those  who  buy  up  their  property  cheaply  reap  ad- 
vantage. It  is  to  be  hoped  that  at  a  future  time  all 
working-men  will  become  capitalists  on  a  small 
scale,  and  wnen  education  and  experience  have  been 
acquired,  co-operative  factories  of  working-men  may 
succeed.  At  present  it  would  be  better  to  leave  the 
management  of  business  in  the  hands  of  capitalists, 
who  are  not  only  experienced  and  clever  men,  but 
have  the  best  reason  to  be  careful  and  active,  because 
their  fortunes  depend  upon  success. 

63.  Providence.  It  is  most  deeply  to  be  re- 
gretted that  the  working-people  of  England  will  not, 
for  the  most  part,  see  the  necessity  of  saving  a  portion 
of  their  wages  in  order  to  have  something  to  live  upon 
when  trade  is  bad,  or  when  ill-health  and  misfortune 
come  upon  them.  Too  many  working-men's  families 
spend  all  that  is  earned  while  trade  is  brisk,  and  when 
employment  fails  they  are  as  badly  off  as  ever. 
There  are  several  distinct  reasons  why  every 
man  or  woman  should  save  up  some  pro- 
perty when  possible:— 

(i)  It  forms  a  provision  in  case  of  ill-health,  acci- 
dent, want  of  employment,  or  other  misfor- 
tune ;  it  is  also  wanted  for  support  in  old  age, 
or  for  the  helpless  widow  and  orphans  of  a 
workman  who  dies  early. 


ix.  ]  CO-  OPERA  TION.  85 

(2)  It  yields  interest,  and   adds   to   a  workman's 

income. 

(3)  It  enables  a  man  to  go  into  trade,  to  buy  good 

tools,  and  to  enjoy  good  credit  in  case  he  sees 
an  opportunity  of  setting  up  business  on  his 
own  account. 

No  man  and  no  woman,  who  is  in  the  prime  of  life 
and  earning  fair  wages,  should  spend  the  whole. 
Even  an  unmarried  person  will  generally  reach  a  time 
of  life  when,  through  ill  health,  old  age,  or  other 
unavoidable  causes,  it  is  no  longer  possible  to  get  a 
living.  By  that  time  enough  ought  to  have  been 
saved  to  avoid  the  need  of  charity  or  the  degradation 
of  the  poor-house.  When  there  is  a  wife  and  young 
family,  the  need  of  saving  is  evidently  greater  still. 
Every  great  storm,  colliery  explosion,  or  other  great 
accident  leaves  a  number  of  helpless  children  to  be 
brought  up  by  a  struggling  widow,  or  to  go  on  the 
parish.  No  doubt  people  may  meet  with  disasters 
so  unexpected  and  so  great  that  they  cannot  be 
blamed  for  not  providing  against  them.  A  man  who 
is  blinded,  or  crippled,  or  otherwise  disabled  in  early 
life,  is  a  proper  object  of  charity,  but  there  would  be 
plenty  of  benevolent  institutions  to  provide  for  such 
exceptional  cases,  if  those  who  are  more  fortunate 
would  provide  properly  for  themselves. 

It  is  often  said  that  working  men  really  cannot  save 
out  of  the  small  wages  they  receive ;  the  expenses  of 
living  are  too  great.  We  cannot  deny  that  there'  are 
labourers,  especially  agricultural  labourers  in  the 
South  of  England,  whose  wages  will  not  do  more  than 
barely  provide  necessary  food  and  clothing  for  their 
families.  The  weekly  earnings  of  a  family  in  some 
parts  are  not  more  than  12  or  15  shillings  on  the 
average  of  the  year,  and  sometimes  even  less.  Such 
people  can  hardly  be  expected  to  save.  But  this  is 
not  the  case  with  the  artisans  and  labourers  in  the 
manufacturing  districts.  They  seldom  earn  less  than 
a  pound  a  week,  and  often  two  pounds.  The  boys 


86  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

and  girls,  and  sometimes  the  mother  of  the  family, 
also  earn  wages,  so  that  when  trade  is  brisk  a  family 
in  Manchester  or  Leicester,  or  other  manufacturing 
town,  will  get  altogether  ;£  150  a  year,  or  more.  Some 
kinds  of  workmen,  especially  coal-hewers,  and  iron- 
puddlers,  earn  twice  that  amount  in  good  years,  and 
are  in  fact  better  paid  than  schoolmasters,  ministers 
of  religion,  and  upper  clerks.  It  is  idle  to  say  that 
the  better-paid  working  men  cannot  save,  and  though 
we  cannot  make  any  strict  rule,  it  is  probable  that  all 
who  earn  more  than  a  pound  (five  dollars,  or 
25  francs)  a  week,  might  save  something. 

It  is  easy  to  prove  this  assertion  by  the  fact  that 
when  a  strike  occurs,  men  voluntarily  live  on  a  half, 
or  a  third  of  their  ordinary  wages.  Sometimes  they 
will  live  for  three  or  four  months  on  12  or  15  shillings 
a  week,  which  is  paid  for  their  support  by  their 
trades-union,  or  by  other  unions,  which  subscribe 
money  to  assist  them.  It  is  quite  common  for  work- 
men to  pay  levies,  that  is,  almost  compulsory  sub- 
scriptions of  a  shilling  or  more  a  week,  to  be  spent  by 
other  workmen  who  are  playing,  as  it  is  called, 
during  a  long  strike.  Nobody  wishes  working  people 
to  live  on  the  half  of  their  wages,  but  if,  .for  the 
purpose  of  carrying  on  struggles  against 
their  employers,  they  can  spare  these  levies, 
it  is  evident  that  they  could  spare  them  for 
the  purpose  -  of  saving.  Then,  again,  we  know 
that  the  money  spent  on  drink  is  enormous  in  amount; 
in  this  country  it  is  about  ;£  140,000,000  a  year,  or 
about  four  pounds  a  year  for  every  man,  woman,  and 
child.  To  say  the  least,  half  of  this  might  be  saved, 
with  the  greatest  advantage  to  the  health  and  morals 
of  the  savers,  and  thus  the  working  classes  would  be 
able  to  lay  by  an  annual  sum  not  much  less  than  the 
revenue  of  the  nation. 


x.]  TENURE  OF  LAND.  87 

CHAPTER  X. 
TENURE   OF  LAND. 

64.  We  have  sufficiently  considered  the  difficulties 
which  exist  regarding  Labour  and  Capital,  two  of 
the  requisites  of  production,  and  we  will  now  turn  to 
another  part  of  political  economy,  and  inquire  into 
the  way  in  which  Land,  the  third  requisite,  is  sup- 
plied. 

In  different  countries  land  is  held  in  very  different 
ways.  It  is  a  matter  of  custom,  and  in  the  course  of 
time  customs  slowly  change.  The  way  in  which  farms 
are  owned  and  managed  in  England  at  the  present 
time  is  no  indication  of  the  way  land  is  held  in 
France,  or  Norway,  or  Russia,  or  even  the  United 
States ;  nor  is  it  the  same  as  the  way  in  which  farms 
were  owned  in  England  some  centuries  ago.  What 
is  fitting  to  one  place  and  state  of  society  will  not 
necessarily  be  fitting  in  other  circumstances.  We  have 
to  consider  the  various  ways  in  which  the  requisites 
of  production,  land,  labour,  and  capital,  are  brought 
together;  sometimes  they  are  all  furnished  by  the 
same  person  ;  sometimes  by  separate  persons. 

In  the  condition  of  slavery,  for  instance,  as  it 
existed  in  the  Southern  States  of  North  America,  the 
owner  of  an  estate  owned  the  land,  labour,  and  capital, 
all  at  once.  Strictly  speaking  a  slave  is  not  a  labourer, 
because  he  cannot  sell  his  labour  at  his  own  price,  and 
work  or  not  as  he  likes.  He  is  more  in  the  posi- 
tion of  the  horse  which  drags  the  plough,  a  mere  beast 
of  burden.  Just  as  a  farmer  owns  his  horses,  and  cows, 
and  pigs,  as  part  of  his  capital,  so  a  slave-owner  treats 
his  slaves  as  part  of  his  capital.  Slave-labour  being 
given  unwillingly,  and  without  hope  of  reward,  is 
usually  badly  given,  and  is  wasteful ;  but  there  is 
hardly  any  need  to  consider  whether  slavery  is  good  or 
bad  in  an  economical  point  of  view,  because  it  is  alto- 


88  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

gether  condemned  from  a  moral  point  of  view.     We 
may  show  the  way  the  requisites  of  production  are  fur- 
nished in  slavery  by  the  following  diagram — 
Slave-Owner. 

Land.        Labour.      Capital. 

In  a  very  large  part  of  the  world,  again,  the  govern- 
ment takes  the  place  of  land-owners,  and  collects  the 
rent  by  means  of  tax-gatherers.  The  farming  is  done 
by  poor  peasants,  who  find  the  capital,  so  far  as  there 
is  any,  and  also  do  the  work.  Thus,  we  have  the 
arrangement- 
Government.  Peasant. 

Land.  Capital.  Labour. 

This  system  is  called  Ryot  Tenure,  and  it  exists  at 
the  present  day  in  Turkey,  Egypt,  Persia,  and  many 
eastern  countries  ;  also  in  a  somewhat  altered  form  in 
British  India.  After  slavery,  it  is  the  worst  of  all 
systems,  because  the  Government  can  fix  the  rent  at 
what  it  likes,  and  it  is  difficult  to  distinguish  between 
rent  and  taxes.  When  their  crops  fail  the  ryot  peasants 
are  unable  to  pay  the  tax-gatherers,  and  they  get  into 
debt  and  become  quite  helpless. 

65.  Peasant  Proprietorship.  One  of  the  best 
modes  of  holding  land,  when  it  can  exist,  is  that  known 
as  peasant  proprietorship,  because  the  owner  of  the 
land  is  the  peasant  himself,  who  labours  with  his  own 
arms,  and  finds  the  capital  also.  In  this  system,  as  in 
slavery,  all  the  requisites  of  production  are  in  the  same 
hands ;  thus — 

Peasant. 

Land.         Labour.      Capital. 

But  in  every  other  respect  this  system  is  the  opposite 
of  slavery.  Its  advantages  are  evident ;  the  labourer 
being  the  owner  of  the  farm  and  of  all  upon  it,  is  an 
independent  man,  who  has  every  inducement  to  work 


x.]  TENURE  Ofi  LAND.  89 

hard,  and  to  increase  his  savings.  Every  little  im- 
provement which  he  can  make  in  his  farm  is  so  much 
added  to  his  wealth,  and  that  of  his  family  after  him. 
There  is  what  is  called  the  magic  of  property.  The 
feeling  that  he  is  working  entirely  for  his  own  and  his 
family's  benefit  almost  magically  increases  his 
inclination  to  work.  In  newly-settled  countries, 
such  as  the  Western  Territories  of  the  United 
States,  and  Canada,  or  the  colonies  of  Australia,  and 
the  Cape,  this  mode  of  holding  land  seems  to  be 
suitable,  because  the  land  is  there  very  cheap,  and 
crops  can  be  raised  with  little  capital.  In  such 
countries  there  is  no  need  of  expensive  manures,  ela- 
borate machinery,  and  the  cost  of  draining  and  improv- 
ing land. 

The  objection  to  peasant  proprietorship  is,  that  he 
who  does  the  labour  of  a  farm  with  his  own  hands, 
must  usually  be  a  poor  and  unskilful  person.  If  he 
were  rich  he  would  probably  prefer  to  buy  up  the  labour, 
of  other  men,  and  become  a  capitalist  farmer;  if  he 
were  a  really  skilful  farmer,  it  would  be  a  pity  to  waste 
his  skill  upon  a  small  farm,  when,  with  more  division 
of  labour,  he  might  profitably  direct  and  manage  a 
large  one.  Being  poor,  his  capital  will  be  mostly  ab- 
sorbed in  building  his  cottage  and  barns,  and  in  pay- 
ing the  small  price  of  his  land  ;  he  will  have  little  left 
to  make  improvements,  or  to  buy  good  labour-saving 
implements,  and  good  stock,  such  as  well-bred  horses, 
cows,  and  pigs.  Thus,  unless  his  land  be  new  and 
very  fertile,  he  will  not  get  a  large  return  for  his  labour. 
Owing  to  the  magic  of  property,  he  may  work  very 
hard,  and  during  long  hours,  but  he  will  not  work  in 
an  economical  way,  and  therefore  will  remain  poor  in 
spite  of  his  severe  exertions.  The  peasant  proprietors 
who  still  exist  in  Switzerland,  Belgium,  Norway, 
Sweden,  and  some  other  parts  of  Europe,  work  almost 
day  and  night  during  the  summer,  and  they  are  very 
careful  and  saving ;  yet  they  seldom  grow  rich,  or  get 
more  than  a  bare  living  out  of  the  soil. 


90  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

Too  frequently  the  peasant  proprietor,  if  he  is  not 
very  provident,  runs  short  of  money  after  one  or  two 
bad  seasons.  He  will  then  be  tempted  to  borrow 
money,  to  sell  his  timber,  and  other  produce  before  it 
is  ready  for  the  market,  and  thus  run  in  debt.  When 
his  farm  has  increased  in  value  and  would  bring  some 
rent,  he  will  very  likely  mortgage  it,  that  is,  give  it  by 
a  legal  deed  as  security  for  his  debts.  The  mortgagee 
or  lender  of  the  money  then  becomes  part-owner  of  the 
land  and  capital,  so  that  the  arrangement  tends  to  take 
this  form— 

Money-Lender.  Peasant. 

Land.  Capital.  Capital.         Labour. 

66.  Tenure  of  Land  in  England.  As  agri- 
culture becomes  more  a  science,  farming  will  require 
greater  skill,  and  larger  capital,  and  the  English  mode 
of  land  tenure  will  probably  spread.  In  this  system 
there  is  the  greatest  division  of  labour,  and  different 
ranks  of  people  have  shares  in  the  business,  somewhat 
as  follows  : — 
Proprietor.  Farmer.  Labourer. 

Land.  Capital.      Capital.  Labour.      Labour. 

The  land  is  usually  owned  by  some  rich  man,  who 
likes  to  have  large  estates,  but  does  not  wish  to  have 
the  trouble  of  farming.  In  respect  of  the  land  only 
he  is  a  proprietor  of  a  natural  agent,  and  the 
rent  he  receives  is  true  rent;  but  there  will  usually 
be  buildings,  roads,  fences,  drains,  and  other  improve- 
ments, of  which  he  is  also  owner;  in  respect  of  these 
he  is  a  capitalist,  and  the  return  he  receives  is  interest. 
The  farmer  is  a  man  of  knowledge  and  skill,  with 
considerable  capital ;  he  hires  the  land  and  its  im-  . 
provements  from  the  proprietor,  and  stocks  it  with 
cattle,  carts,  improved  implements  of  all  kinds,  and 
then  employs  day-labourers  to  do  the  manual  work, 
labouring  himself  in  superintendence,  in  keeping 


x.]  TENURE  OF  LAND.  9! 

accounts,  buying  and  selling,  &c.  The  labourer, 
generally  speaking,  is  nothing  but  a  labourer;  he 
lives  in  a  cottage  hired  probably  from  the  farmer  or 
proprietor,  and  he  has  little  motive  for  working 
harder  than  he  is  made  to  do,  because  the  advantage 
goes  to  his  employer. 

In  this  arrangement  there  are  great  advantages,  and 
also  great  disadvantages.  The  farmer,  being  an  intel- 
ligent man,  acquainted  with  agricultural  science,  and 
furnished  with  plenty  of  capital,  can  adopt  all  the 
latest  inventions,  and  raise  the  largest  possible  pro- 
duce from  the  land  and  labour.  Jt  is  also  advan- 
tageous that  the  farmer  does  not  own  the  land  and 
fixed  capital,  because  this  leaves  all  his  own  capital 
free  to  provide  more  expensive  implements  and  man- 
ures, and  finer  kinds  of  cattle.  It  is  also  a  good 
thing  that  farms  will,  on  this  system,  be  large,  so  that 
there  will  be  considerable  division  of  labour,  almost  as 
in  a  factory;  thus  there  will  arise  some  of  the  ad- 
vantages which  were  described  as  belonging  to  the 
Division  of  Labour  (Sections  25 — 29). 

The  disadvantages  of  the  English  mode  of  farming 
are  also  great,  especially  as  regards  the  labourers,  the 
most  numerous  class.  They  have  none  of  the  inde- 
pendence of  peasant  proprietors,  and,  when  dismissed, 
or  too  old  to  work,  have  probably  to  go  to  the  work- 
house. Their  wages  have  hitherto  been  very  low,  and 
saving  was  not  possible.  But  this  state  of  things  is 
partly  due  to  the  bad  Poor  Laws  which  used  to  exist  in 
England, and  to  the  excessive  numbers  of  poor,  ignorant 
labourers.  After  a  time,  when  the  poor  laws  are  im- 
proved, when  labourers  become  more  educated,  and 
are  employed,  like  factory  hands,  to  work  machines, 
there  is  no  reason  why  they  should  not  get  good 
wages,  and  become  independent,  like  artisans. 

In  the  English  system,  a  great  deal  depends  upon 
the  nature  of  the  agreement  between  the  land-owner 
and  the  capitalist  farmer.  Many  large  land-owners  in 
England  refuse  to  let  their  land  for  long  periods 


9  2  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

They  like  to  have  farmers  who  are  tenants  at  will, 
and  can  be  turned  off  their  farms  at  a  year's  notice, 
and  deprived  of  the  value  of  all  the  improvements 
they  have  made,  if  they  offend  the  great  land-owner. 
It  is  easy  to  understand  this  ;  the  land-owners  wish  to 
be  lords,  and  to  rule  affairs  in  their  own  neighbour- 
hood, as  if  they  were  little  kings.  This  sort  of  thing 
is  called  territorial  influence,  and  men  who  have 
become  rich  by  making  iron  or  cotton  goods,  often 
buy  estates  at  a  high  price,  in  order  to  enjoy  the 
pleasure  of  feeling  like  lords.  The  rural  parts  of 
England,  Scotland,  and  Ireland  are  still,  in  fact,  under 
the  feudal  system. 

In  a  Primer  like  this  we  have  to  look  at  the  matter 
as  regards  political  economy  only,  and  in  this  respect 
the  arrangement  described  is  bad.  Tenants  at  will 
have  no  inducement  to  improve  their  farms,  because 
this  would  tempt  the  land-owner  to  turn  them  out,  or 
to  raise  the  rent.  It  is  generally  understood,  indeed, 
that  a  land-owner  will  not  use  his  power,  so  that  many 
farmers  act  as  if  they  were  sure  of  holding  their  farms  ; 
if  turned  out  after  all,  they  are  practically  robbed  of 
their  capital ;  and,  in  any*  case,  they  cannot  possibly 
feel  the  independence  which  every  man  ought  to 
enjoy.  We  must  always  remember  that  the  laws 
should  be  made  not  for  the  benefit  of  any  one  class, 
but  for  the  benefit  of  the  whole  country.  The  laws 
concerning  landlord  and  tenant  have,  however,  been 
made  by  landlords,  and  are  more  fitted  to  promote 
their  enjoyment  than  to  improve  agriculture. 

There  are  two  modes  of  remedying  the  unfortunate 
state  of  land  tenure  in  this  country,  namely  :— 
s   (i)  By  a  system  of  long  leases. 
(2)  By  tenant  right. 

67.  Leasehold  Tenure.  A  lease  is  a  formal 
agreement  to  let  land  or  houses  to  a  tenant  for  a  certain 
number  of  years  at  a  fixed  rent,  and  with  various  con- 
ditions, which  are  carefully  stated,  to  prevent  mis- 
understanding. When  land  is  taken  by  a  farmer 


TENURE  OF  LAND.  93 

under  a  lease  for  thirty  years  or  more,  it  becomes 
almost  like  his  own  property,  because,  in  the  earlier 
part  of  his  term,  he  can  make  great  improvements 
with  the  aid  of  his  capital,  and  yet  be  sure  of  getting 
the  value  back  before  the  lease  comes  to  an  end.  In 
the  eastern  parts  of  England  and  Scotland,  where  the 
farms  are  largest  and  best  managed,  these  long  leases 
are  the  usual  mode  of  letting  land.  It  is  certainly  one 
of  the  best  arrangements  for  promoting  good  farming, 
and  it  has  few  disadvantages,  except  that  the  farmer  will 
not  make  improvements  towards  the  end  of  his  lease. 

68.  Tenant  Right.  Another  good  arrangement 
is  tenant  right,  which  consists  in  giving  the  tenant 
a  right  to  claim  the  value  of  any  unexhausted 
improvements,  which  he  may  have  made  in  his 
farm,  if  he  be  turned  out  of  it.  A  farmer  can  prove 
without  difficulty  how  much  he  has  spent  in  building 
barns,  stables,  piggeries,  &c.,  in  draining  the  lands, 
making  roads  and  fences,  or  in  putting  lime  and  costly 
manures  into  the  soil.  Those  who  are  experienced  in 
farming  can  form  a  good  judgment  how  long  each 
improvement  will  continue  profitable,  so  as  to  calcu- 
late how  much  the  tenant  loses  if  he  be  turned  away. 
Thus  a  good  estimate  may  be  formed  as  to  the  sum 
which  the  tenant  should  receive  as  compensation,  and 
the  landlord,  if  he  chooses  to  dismiss  the  tenant,  should 
be  obliged  to  pay  this  compensation.  He  will  get  it 
back  by  charging  a  higher  rent  to  the  next  tenant. 

Tenant  right,  though  unknown  in  most  parts  of 
England,  is  not  at  all  a  new  system ;  it  has  existed  for 
a  long  time  in  the  north  of  Ireland,  where  it  is  called 
the  Ulster  tenant  right.  A  new  tenant  there  pays 
the  old  tenant  a  considerable  sum  of  money  for  the 
privilege  of  getting  a  good  farm  with  various  improve- 
ments, and  the  land-owner  is  practically  prevented  from 
turning  out  a  good  tenant  at  his  mere  will.  In 
Yorkshire  also  it  has  been  the  custom  to  compensate 
an  outgoing  tenant,  and  there  is  no  good  reason  why 
the  custom  should  not  be  made  into  a  legal  right,  and 


94  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

extended  over  the  whole  country.  Mr.  Gladstone's 
Irish  Land  Act  has  already  established  a  somewhat 
similar  system  throughout  Ireland.  If  the  land  is  to 
be  used  for  its  proper  purposes,  and  not  merely  for 
the  amusement  and  pride  of  a  few  landlords,  every 
owner  of  land  who  lets  it  should  be  obliged 
either  to  give  a  long  lease,  say  of  thirty  or 
fifty  years,  or  else  to  pay  the  compensation 
fixed  by  a  jury  after  taking  evidence  from  those 
skilled  in  valuing  farms.  It  should  be  made  illegal 
tp  let  land  on  any  other  terms. 

69.  The  Cause  of  Rent.  It  is  very  important 
to  understand  exactly  how  rent  arises,  for  without 
knowing  this  it  is  impossible  to  see  why  a  landlord 
should  be  allowed  to  come  and  take  away  a  consider- 
able part  of  what  is  produced,  without  taking  any  other 
trouble  in  the  matter.  But  the  fact  is  that  we  cannot 
"  do  away  with  rents  :  they  must  go  to  some  one  or  other, 
and  the  only  real  question  which  can  arise  is  whether 
there  shall  be  many  landlords  receiving  small  rents 
or  few  landlords  with  great  rent-rolls. 

Rent  arises  from  the  fact  that  different  pieces  of 
land  are  not  equally  fertile,  that  is,  they  do  not  yield 
the  same  quantities  of  produce  for  the  same  quantities 
of  labour.  This  may  arise  from  the  soil  being  different, 
or  from  one  piece  of  land  getting  more  sun  and  mois- 
ture than  another.  If  the  earth  had  a  perfectly  smooth 
surface  the  same  everywhere,  and  if  it  were  all  tilled 
and  cultivated  in  exactly  the  same  way,  there  would  be 
no  such  thing  as  rent.  But  the  earth's  surface,  as  we 
know,  has  hills  and  valleys  :  there  are  flats  of  rich 
soil  in  one  place,  and  wastes  of  dry  sand  and  stones 
in  other  places.  Now,  where  the  soil  is  good  and 
favourably  situated  for  growing  corn,  or  other  produce, 
the  owner  of  such  land  must  get  more,  in  return  for 
his  labour,  than  if  he  possessed  a  bad  piece  of  land. 
Even  then,  if  everybody  owned  the  farm  which  he 
cultivates,  those  who  owned  the  better  pieces  would 
get  rent,  because  they  would  get  more  produce.  Thus, 


XL]  TENURE  OF  LAND.  95 

after  allowing  the  same  wages  to  all,  there  would 
remain  something  in  addition  to  the  lucky  owners  of 
the  better  land.  If,  instead  of  working  on  this  good 

•land  themselves,  they  let  it  to  other  workmen,  they 
will  be  able  to  get  a  rent  depending  on  the  richness 
and  the  other  advantages  of  the  land. 

Now  there  can  be  little  difficulty  in  seeing  how  the 
amount  of  rent  of  land  is  governed.  That  land  will 
pay  no  rent  at  all  which  only  gives  produce  enough  to 
pay  the  wages  of  the  labourers  who  work  upon  it, 
together  with  the  interest  of  any  capital  which  they 
require.  The  rent  ot  better  land  will  then  consist  of 

*the  surplus  of  its  produce  over  that  of  the  poorest 
cultivated  land,  after  allowance  has  been  made  for  the 
greater  or  less  amount  of  labour  and  capital  expended 
on  it.  Or  we  may  look  at  the  matter  in  this  way:  The 
price  of  corn  is  decided  by  the  cost  of  producing  it  on 
land  which  just  pays  the  expenses  of  cultivation,  because 
when  more  corn  is  needed,  it  is  from  such  land  we 
must  procure  it,  the  better  land  having  been  long  since 
occupied.  But  corn  of  the  same  quality  sells  at  the 
same  price  whatever  be  its  cost  of  production ;  hence 
the  rent  of  more  fertile  land  will  be  the  excess  of  the1 
price  of  its  produce  over  that  of  land  which  only  just 
pays  the  cultivator  and  leaves  no  rent. 


CHAPTER   XL 
EXCHANGE. 

70.  How  Exchange  Arises.  One  of  the  most 
important  ways  in  which  we  can  increase  wealth  con- 
sists in  exchange — in  giving  what  we  do  not 
want  in  return  for  what  we  do  want. 
Wealth,  as  we  have  seen,  is  anything  which  is  actually 
useful  to  us,  because  we  have  not  enough  already, 
and  which  can  be  transferred  to  another  person.  But 
when  our  want  of  any  kind  of  commodity  is  satisfied, 
we  want  no  more  of  that,  but  we  do  want  other  kinds 


96  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

'of -commodity.""* The  result  is  that  exchange  constantly 
produces  a  gain  of  utility.  Some  people  have 
objected  that  there  can  be  no  good  in  exchange, 
because  that  which  is  given  equals  in  value  that  which  * 
is  received.  Others  have  said  that,  if  one  party  gains, 
it  must  evidently  be  by  robbing  the  other  party. 
According  to  this  view,  trade  would  consist  in  trying 
to  beggar  your  neighbour.  That  which  is  given  does 
really  equal  in  value  that  which  is  received,  but  it 
does  not  equal  it  in  utility,  and  to  increase  utility  is 
the  purpose  of  all  production  and  all  commerce.  We 
do  not  pay  for  things  in  proportion  to  their  usefulness, 
or  else  air  and  water  would  be  the  most  costly  of  all* 
things.  A  good-sized  loaf  may  be  bought  for  four- 
pence  or  sixpence,  although  bread  is  the  staff  of  life. 
Before  attempting  to  understand  this  apparent  paradox, 
we  must  settle  exactly  what  we  mean  by  value. 

71.  What  is  Value?  In  exchanging  some  goods 
for  other  goods,  there  arises  the  question,  How  much 
of  one  kind  shall  be  given  for  so  much  of  the  other  ? 
Some  things  are  said  to  be  valuable,  as  in  the  case 
of  a  gold  watch  or  a  diamond  ring,  because  in  ex- 
change for  them  we  can  get  a  great  quantity  of  other 
articles.  Ashes  are  of  little  or  no  value,  because  we 
cannot  get  anything  in  exchange  for  them.  Now  this 
word  value  is  a  very  difficult  one,  and  is  employed 
to  mean  different  things.  We  may  say  that  quinine  is 
valuable  for  curing  fevers,  that  iron  is  valuable  for 
improving  the  blood,  or  that  water  is  valuable  for 
putting  out  fires.  Here  we  do  not  mean  valuable  in 
exchange,  for  quinine  would  cure  fevers  just  as  well  if 
it  cost  a  penny  an  ounce  instead  of  some  ten  shillings. 
Water,  if  we  can  get  it  at  the  right  time,  puts  out  a 
fire  whether  it  costs  much  or  little  or  nothing.  It  is 
clear,  then,  that  by  valuable  we  often  mean  valuable 
in  use.  The  words  value  and  valuable  are  in  fact 
ambiguous.  (See  Logic  Primer,  pp.  22-26,  on  The 
Correct  Use  of  Words.)  There  is  value  in  use 
and  value  in  exchange,  and  many  things 


XL]  EXCHANGE.  97 

which  would  be  commonly  said  to  have  little 
value  in  exchange  have  much  value  in  use. 

But  of  these  meanings,  "value  in  use"  is  nothing  but 
the  utility  of  a  thing  to  us,  that  is,  the  utility  of  all 
such  portions  of  it  as  we  can  actually  employ.  Thus, 
the  value  in  use  of  water  means  the  utility  of  the  water 
that  we  drink,  or  wash  in,  or  cook  with,  or  water  the 
roads  with,  and  this  utility  is  very  great.  But  of 
course  it  cannot  mean  the  utility  of  water  which  is  not 
useful  to  us,  but  on  the  contrary  hurtful,  as  in  the  case 
of  floods,  damp  houses,  wet  mines,  and  so  forth. 

We  may  now  see  how  true  was  the  remark  of 
Genovesi,  the  Italian  economist,  that  "Exchange 
consists  in  giving  the  superfluous  for  the 
necessary,"  or,  as  I  should  prefer  to  say,  the  com- 
paratively superfluous  for  the  comparatively 
necessary.  He  who  has  more  than  enough  of  one 
article  has  already  enjoyed  all  the  good  which  that 
•article  can  do  to  him,  but  he  probably  needs  supplies 
of  other  articles.  The  exchange,  like  an  act  of  mercy, 
blesses  both  him  who  gives  and  him  who  receives, 
because  what  each  receives  in  exchange  is  much 
wanted  and  has  high  utility.  In  England,  for  instance, 
we  possess  a  great  deal  of  coal,  and  France  produces 
plenty  of  good  wine.  We  could  have  little  or  no  wine 
in  England  unless  we  got  it  from  France  or  some 
foreign  country,  and  France  also  is  much  in  want  of 
coal.  It  is  obvious  that  there  is  a  great  gain  of  utility  •• 
if  we  give  some  of  our  comparatively  superfluous  coal 
in  exchange  for  some  of  the  abundant  wine  of  France. 

It  has  been  objected  to  commerce  that  it  is  sterile 
and  produces  no  new  goods.  There  exist  neither 
more  nor  less  coal  and  wine  after  they  are  exchanged 
than  before.  But  in  political  economy  we  treat  of 
utility  and  wealth ;  the  question  is  whether  things  are 
usefully  consumed  or  not.  Now  that  which  is  not 
wealth  if  it  were  consumed  by  one  person,  becomes 
wealth  when  handed  over  to  another  person  for  con- 
sumpti  n.  Though  exchange  cannot  create  the  : 


98  PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

material  of  wealth,  it  creates  wealth  because 
it  gives  utility  to  the  material. 

72.  Value  means  Proportion  in  Exchange. 
When  we  speak  of  the  value  of  a  thing  in  exchange, 
we  mean  how  much  of  some  other  thing  we  can  get 
for  it.  This  of  course  will  depend  upon  the  nature  of 
that  other  thing.  Obviously,  I  can  get  for  a  shilling 
much  more  potatoes  than  bread,  and  bread  than  beef, 
and  beef  than  essence  of  beef.  Therefore,  when  we 
speak  of  the  value  of  a  thing,  we  ought  always  to  say 
what  it  is  to  be  valued  by.  The  word  value  only 
means  that  so  much  of  one  thing  is  given  for 
so  much  of  the  other,  and  it  is  the  proportion 
of  these  quantities  (Latin  proportio,  from  pro,  in  com- 
parison with,  and  portio,  share),  which  measures  the 
values  of  the  thing.  A  ton  of  pig-iron  can  usually  be 
got  for  a  quarter  of  corn ;  here  the  proportion  is  one 
to  one.  To  get  a  ton  of  copper,  we  should  probably 
have  to  give  thirty  quarters  of  corn ;  here  the  propor- 
tion is  that  of  one  to  thirty.  There  cannot  be  such  a 
thing  as  value  in  exchange,  unless  there  be  proportion 
— so  much  of  one  commodity  for  so  much  of  another. 
<  Usually,  indeed,  we  measure  the  values  of  things  by 
their  prices.  The  price  is  the  quantity  of 
money  which  we  give  for  a  thing  ;  in  this  case 
the  proportion  is  between  the  quantity  of  money  and 
the  quantity  of  goods  we  get  for  it,  as  when  we  give 
sixty  shillings  for  ten  yards  of  carpet.  We  shall  learn 
later  on  that  money  is  a  kind  of  commodity,  which 
has  utility  and  value  like  other  commodities.  But 
there  is  great  convenience  in  always  thinking  and 
speaking  of  values  in  money,  because  we  can  then 
readily  compare  the  value  of  one  thing  with  that  of 
any  other.  If  a  pound  of  potatoes  costs  one  penny, 
a  pound  of  bread  threepence,  and  a  pound  of  beef 
ninepence,  we  can  see  at  once  that  a  pound  of  beef  is 
of  the  same  value  as  three  pounds  of  bread  and  nine 
pounds  of  potatoes,  and  we  can  judge  how  r.iuch  of 
each  to  use. 


XL]  EXCHANGE.  99 

73.  Laws   of  Supply  and  Demand.     In  the 

next  place,  we  must  try  to  understand  how  the  values 
of  things  are  governed,  and  made  to  change  from  time 
to  time.  The  principal  laws  which  govern  values  are 
called  the  laws  of  supply  and  demand,  and 
they  are  very  important  indeed.  Supply  means  the 
quantity  of  any  goods  which  people  are  willing  to  give 
in  exchange  at  a  certain  value,  and  demand  means 
similarly  the  quantity  of  goods  which  people  are  willing 
to  take  in  exchange;  but,  before  a  person  can  judge 
how  much  he  wishes  to  buy  of  a  particular  kind  of 
goods,  he  must  know  its  price,  that  is,  its  proportion  in 
exchange  for  money.  If  bread,  instead  of  being  three- 
pence per  pound,  becomes  fourpence,  a  poor  person 
would  perhaps  decide  to  take  less  bread,  and  to  buy 
more  potatoes.  If  beef,  instead  of  being  ninepence, 
should  rise  to  a  shilling,  or  fourteenpence  a  pound, 
some  people  would  refuse  to  buy  it  altogether,  and 
others  would  buy  less  than  before.  The  supply  of 
things  varies  similarly ;  if  the  price  of  meat  rises  high, 
farmers  who  own  cattle  bring  them  to  market,  in  order 
to  get  a  good  profit  by  selling  them ;  if  the  price  falls 
low,  they  keep  their  cattle  to  sell  at  another  time. 

The  Laws  of  Supply  and  Demand  may  be 
thus  stated  :  a  rise  of  price  tends  to  produce  a  greater  ' 
supply  and  a  less  demand ;  a  fall  of  price  tends  to 
produce  a  less  supply  and  a  greater  demand.  Con- 
versely, an  increase  of  supply  or  a  decrease  of  demand 
tends  to  lower  price,  and  a  decrease  of  supply  or  an 
increase  of  demand  to  raise  price. 

These  laws  are  so  important  that  I  will  state   them 
over  again,  in  the  form  of  a  table  : — 


Price. 

Supply. 

Demand. 

Higher. 

G  reater. 

Less. 

Lower. 

Less. 

Greater. 

.loo        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

We  can  now  understand  how  the  price  of  any  kind 
of  goods  is  decided.  The  price  must  be  such  that 
,  the  quantity  demanded  at  any  time  is  equal  to  the 
quantity  supplied.  If  those  who  want  goods  at  a 
certain  price,  cannot  get  them,  they  will  have  to 
offer  a  higher  price,  so  that  they  may  induce  other 
people  to  sell.  The  higher  the  price  the  greater  the 
supply,  as  we  have  seen ;  moreover,  if  some  people  in 
a  market  are  offering  a  higher  price,  it  soon  becomes 
known  to  other  dealers.  When  a  farmer's  wife  carries 
a  basket  of  butter  to  sell  at  the  Butter  Cross  in  the 
neighbouring  market  town,  she  soon  learns  whether 
the  supply  is  greater  or  less  than  usual.  If  the  pur- 
chasers are  few  and  slow  in  buying,  she  begins  to  fear 
that  she  may  have  to  carry  her  butter  back  unsold, 
and  go  without  the  crockery  and  calico  and  other 
things  which  she  intended  to  buy  with  the  money. 
Then  she  begins  to  ask  a  penny  or  twopence  a  pound 
less,  and  the  other  sellers  of  butter  are  obliged  to 
lower  their  prices  also,  since  no  one  would  buy  butter 
from  one  woman  at  is.  6d.,  if  he  could  get  it  as  good 
from  the  next  person  at  is.  4d.  But,  if  few  people 
bring  butter  to  market,  or  if  there  are  many  purchasers 
with  money  in  their  pockets,  the  scene  is  quite  changed. 
Those  who  have  brought  butter,  find  that  they  will 
have  no  difficulty  in  selling  all  they  have ;  it  is  the 
purchasers  who  now  become  anxious  to  buy  before  all 
is  gone,  and  their  eagerness  soon  shows  the  sellers 
that  they  may  ask  higher  prices.  It  is  by  this  higgling 
of  the  market,  by  sellers  asking  the  highest  price 
they  think  they  can  get,  and  buyers  trying  to  buy  at 
the  lowest  price  which  they  think  will  be  taken — that 
the  market  price  of  any  commodity  is  settled. 

The  market  price  will  be  such  that  the 
/demand  at  that  price  will  equal  the  supply 
at  that  price.  The  quantity  of  butter  or  any  other 
commodity  that  is  sold  must  equal  what  is  bought, 
because  it  is  not  sold  until  it  is  bought ;  but  the  price 
will  settle  itself  accordingly. 


XL]  EXCHANGE.  101 


74.  How  Value  depends  upon  Labour.    We 

now  come  to  the  great  question  whether  value  is 
produced  by  labour,  or  how  it  is  connected  with 
labour.  Some  economists,  observing  that,  when  a 
thing  like  gold  is  very  valuable,  men  spend  a  great 
deal  of  labour  in  getting  it,  have  said  that  the  labour 
spent  upon  it  is  the  cause  of  the  high  value. 
This  is  quite  wrong;  for  if  it  were  true,  any- 
thing, upon  which  great  labour  has  been  spent,  ought 
to  be  very  valuable ;  everybody  knows  that  such  is  not 
the  case.  Great  labour  may  be  expended  in  writing, 
printing,  and  binding  a  book ;  but,  if  nobody  Avants 
the  book,  it  is  valueless,  except  as  waste  paper.  A 
vast  amount  of  labour  was  spent  on  building  the 
Thames  Tunnel,  but,  as  few  people  wished  to  go 
through  it,  the  tunnel  was  of  small  value,  until  it  was 
required  for  a  railway.  Thus  it  is  quite  certain  that 
we  cannot  make  a  thing  valuable  by  simply  labouring 
at  it ;  we  must  labour  in  such  a  way  as  to  make  the 
thing  useful. 

On  the  other  hand,  substances  may  be  very  valuable 
which  have  cost  little  or  no  labour.  When  a  shepherd 
in  Australia  happens  to  pick  up  a  nugget  of  gold  on 
the  mountain  side,  it  takes  no  labour  worth  men- 
tioning to  pick  it  up,  yet  the  gold  is  just  as  valuable 
in  proportion  to  its  weight  as  any  other  gold.  Some 
gold  mines  produce  a  great  quantity  of  gold  :  others 
which  have  cost  quite  as  much  to  sink,  produce  little ; 
nevertheless  the  gold  out  of  the  one  mine  is  sold  at 
the  same  price  in  proportion  to  its  weight  and  fineness 
as  that  out  of  the  other  mine.  Thus  it  is  quite 
certain  that  labour  is  not  the  cause  of  value. 
Gold  is  valuable  because  a  great  many  people  want 
more  gold  than  they  have  already  got,  and  whenever 
a  thing  is  valuable  it  is  because  somebody  wants  it.  *, 

But  we  may  look  at  this  matter  in  another  way.  If 
it  were  possible  to  get  a  valuable  thing  like  gold  with 
little  labour,  many  people  would  become  gold  miners. 
Much  gold  would  then  be  produced;  if  this  were 


102         PRIMER  OF  POLITICAL  ECOATOMY.          [CH. 

wanted  as  much  as  what  was  already  in  use,  it  would 
be  as  valuable.  But  no  one  wants  an  unlimited 
quantity  of  any  substance.  Wealth,  as  we  saw,  must 
be  limited  in  supply ;  if  gold  became  as  plentiful  as 
lead  or  iron,  it  could  not  possibly  remain  as  valuable 
as  it  is  now.  People  would  have  far  more  than  they 
could  employ  for  ornaments,  watches,  gilding  and  so 
forth ;  there  would  be  a  large  surplus  to  be  used  in 
making  pots  and  pans,  for  which  it  is  less  needed. 
Now  we  can  see  through  the  whole  subject  of  value. 
When  much  of  a  substance  can  usually  be  produced 
with  little  labour,  the  substance  becomes  so  plentiful 
that  people  are  satisfied  with  the  supplies  of  it  which 
they  have ;  they  do  not  want  more,  or  at  least  do  not 
want  it  so  urgently.  It  follows  that  they  are  unwilling 
to  give  much  wealth  for  it.*'  Thus  the  labour  spent 
upon  producing  a  commodity  does  not  affect  the  value 
of  that  commodity,  unless  it  alters  the  quantity  of  it 
which  people  can  get,  and  thus  makes  a  further  supply 
of  the  commodity  more  or  less  useful  than  before. 

75.  Why  Pearls  are  valuable.  To  make  this 
still  more  plain,  let  us  endeavour  to  answer  this 
difficult  question,  "Do  men  dive  for  pearls  because 
pearls  fetch  a  high  price,  or  do  pearls  fetch  a  high 
price  because  men  must  dive  in  order  to  get  them?77 
Pearl-diving  is  a  very  dangerous  and  laborious  kind  of 
work.  The  divers  have  to  jump  into  the  deep  sea 
with  heavy  weights  to  carry  them  down,  and  they  must 
hold  their  breath  a  long  time  while  they  are  engaged 
in  collecting  the  oyster  shells  at  the  bottom.  The 
number  of  good  pearls  which  they  generally  get  is 
small  compared  with  the  great  toil  of  getting  them. 
It  follows  that,  on  the  average,  they  must  receive  a 
high  price  for  what  they  do  find,  otherwise  they  would 
not  have  adequate  wages  for  such  work.  But  this 
alone  is  not  a  sufficient  reason  for  the  pearls  being  so 
valuable,  otherwise  the  mother  of  pearl  shells,  in 
which  the  pearls  are  found,  and  brought  up,  would 
be  as  valuable  as  the  pearls.  But  mother  of  pearl  is 


XL]  EXCHANGE. 


a  very  cheap  substance.  Again,  if  it  were  merely  a 
question  of  labour,  a  diver  might  go  down  anywhere, 
and,  bringing  up  the  first  stone  or  shell  he  found,  insist 
on  selling  it  for  a  high  price,  because  he  had  dived 
for  it.  The  truth  is,  that  pearls  are  valuable  because 
there  are  many  ladies  who  have  not  got  pearl  neck- 
laces, and  who  would  like  to  have  them;  and  those 
who  have  some  pearls  would  like  to  get  more  and 
finer  ones.  In  short,  then,  pearls  are  valuable  be- 
cause they  are  useful  to  ladies  who  want  more  pearl 
ornaments  :  they  are  thus  useful  because  the  ladies 
have  not  hitherto  been  able  to  get  as  many  as  they 
would  like  ;  and  they  have  not  been  able  to  get 
many,  because  it  is  so  difficult  to  fish  them  up  from 
the  bottom  of  the  sea.  Here  we  have  the  whole 
theory  of  value  and  labour.  The  labour  which 
is  required  to  get  more  of  a  commodity 
governs  the  supply  of  it;  the  supply  deter- 
mines whether  people  do  or  do  not  want 
more  of  it  eagerly  ;  and  this  eagerness  of 
want  or  demand  governs  value. 

CHAPTER  XII. 
MONEY. 

76.  Barter.  When  exchanges  are  made  by  giving 
one  ordinary  commodity  for  another,  as  a  sack  of  corn 
for  a  side  of  bacon,  or  a  book  for  a  telescope,  we  are 
said  to  barter  them.  The  operation  is  also  called 
truck  (French,  tree,  barter).  Among  uncivilised 
races  trade  is  still  carried  on  in  this  way  ;  a  traveller 
going  into  the  interior  of  South  Africa  takes  a  stock  of 
beads,  knives,  pieces  of  iron,  looking-glasses,  &c.,  in 
order  that  he  may  always  have  something  which  the 
natives  will  like  to  receive  in  exchange  for  food  or 
services.  People  still  occasionally  barter  things  in 
England,  or  the  United  States,  but  this  is  seldom 
done,  owing  to  the  trouble  which  it  gives. 

If,  for  instance,  I  want  a  telescope,  in  exchange  for 


104        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

a  book,  I  shall  probably  have  to  make  many  inquiries, 
and  to  wait  a  long  time  before  I  meet  with  a  person 
who  has  a  telescope  to  spare,  and  who  is  also  willing 
to  take  my  book  in  exchange.  It  is  very  unlikely 
,  that  he  who  has  a  telescope  will  just  happen  to  want 
that  particular  book.  A  second  difficulty  is,  that  the 
book  will  probably  not  be  worth  just  as  much  as  the 
telescope,  and  neither  more  nor  less.  He  who  owns 
a  valuable  telescope  cannot  cut  it  up,  and  sell  a  part 
to  one  and  a  part  to  another ;  this  would  destroy  its 
value. 

77.  Convenience  of  Money.  With  the  aid  of 
money  all  the  difficulties  of  barter  disappear ;  for 
money  consists  of  some  commodity  which 
all  people  in  the  country  are  willing  to  re- 
ceive in  exchange,  and  which  can  be  divided 
into  quantities  of  any  amount.  Almost  any 
commodity  might  be  used  as  money  in  the  absence 
of  a  better  material.  In  agricultural  countries  corn 
was  so  used  in  former  times.  Every  farmer  had  a 
stock  of  corn  in  his  own  granary,  and  if  he  wanted  to 
buy  a  horse  or  cart,  he  took  so  many  sacks  of  corn 
to  his  neighbour's  granary  in  exchange.  Now  suppose 
that,  with  corn  as  money,  a  farmer  wanted  to  part 
with  a  cart  and  get  a  plough  instead;  he  need  not 
inquire  until  he  finds  a  person  willing  to  receive  a 
cart,  and  give  a  plough  in  exchange.  It  is  sufficient 
if  he  find  oner  farmer  who  will  receive  a  cart  and  give 
corn,  and  any  other  farmer  who  will  give  a  plough 
and  receive  corn.  No  difficulty  arises,  too,  if  the 
cart  or  plough  are  not  of  equal  value  ;  for  if  the  cart 
be  the  more  valuable,  then  the  farmer  finally  gets  for 
it  the  plough  together  with  enough  corn  to  make  up 
the  difference.  Money  thus  acts  as  a  medium  of 
exchange  ;  it  is  a  go-between,  or  third  term,  and  it 
facilitates  exchange  by  dividing  the  act  of  barter  into 
two  acts,  in  this  way — 

Sale.  Purchase. 

Cart.       Money-     Plough. 


XIL]  MONEY.  105 

No  doubt  it  turns  one  act  of  exchange  into  two ; 
but  the  two  are  far  more  easy  to  manage  than  one, 
because  they  need  not  be  made  with  the  same  person. 
78.  Money  as  a  Measure  of  Value.  When 
money  is  used  in  exchange,  he  who  receives  money  is 
said  to  sell  goods,  and  he  who  pays  money  is  said 
to  buy  or  to  purchase.  In  each  case  there  is  an 
act  of  exchange,  and  sales  and  purchases  are  not  really 
different  in  nature  from  acts  of  barter,  except  that  one 
of  the  commodities  given  or  received  is  employed  for 
the  purpose  of  arranging  the  exchange.  Thus  money 
may  be  called  current  commodity,  because  it  is 
merchandise  chosen  to  run  about  as  a  medium  of 
exchange.  Now,  in  every  purchase  or  sale  there  must 
be  some  proportion  between  the  quantity  of  the 
money,  and  the  quantity  of  the  other  commodity. 
This  proportion  expresses  the  value  of  the  one  com- 
modity as  compared  with  the  other.  Value  in  ex- 
change means  nothing  but  this  proportion,  as  was 
before  explained  (section  72).  Now  when  money  is 
used,  the  quantity  of  money  given  or  received  lor  a 
certain  quantity  of  goods  is  called  the  price  of 
that  goods,  so  that  the  price  is  the  value  of  goods  • 
stated  in  money.  But  as  money  when  once  introduced 
is  used  in  almost  every  act  of  exchange,  a  further  great 
advantage  arises.  We  are  able  to  compare  the  value 
of  any  commodity  with  that  of  any  other  commodity. 
If  we  know  how  much  copper  may  be  had  for  so  much 
lead ;  how  much  iron  for  so  much  steel ;  and  so  on 
with  zinc  and  brass,  bricks  and  timber,  and  so  forth, 
it  would  not  be  possible  to  compare  the  value  of 
copper  with  zinc,  or  iron  with  timber.  But  if  we 
know  that  for  one  ounce  of  gold  we  can  get  950  ounces 
of  tin,  1,700  ounces  of  copper,  6,400  ounces  of  lead, 
and  16,000  ounces  of  wrought  iron,  then  we  learn 
without  any  trouble  that  for  1,700  ounces  of  copper  we 
can  get  16,000  ounces  of  iron,  and  so  on.  Thus  gold 
or  any  other  substance  used  as  money  serves  as  a 
common  measure  of  value;  it  measures  the  value 


lo6        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

of  every  other  commodity,  and  thus  enables  us  to 
compare  the  value  of  each  commodity  with  that  of 
every  other. 

This  is  an  immense  convenience.  It  leads  every 
one  to  think  and  speak  of  the  values  of  things  in  terms 
of  a  money  known  to  everybody.  All  lists  of  values 
of  goods  are  given  as  lists  of  prices  and  everybody 
understands  these  prices  and  can  compare  the  prices 
in  one  list  with  those  in  another.  Money  may  then  be 
said  to  have  two  chief  functions.  It  serves  as 

(1)  A  medium  of  exchange. 

(2)  A  common  measure  of  value. 

But  it  is  important  to  remember  that,  though  money 
thus  acts  in  a  very  useful  and  peculiar  way,  it  never 
ceases  to  be  a  commodity.  Its  value  is  subject  to  the 
laws  of  supply  and  demand  already  stated  (section 
73);  if  the  quantity  of  money  increases,  its  value  is 
likely  to  decrease,  so  that  more  money  is  given  for  the 
same  commodity,  and  vice  versa. 

79.  What  Money  is  made -of.  As  already 
remarked  almost  any  commodity  may  be  used  as 
money,  and  in  different  ages  all  kinds  of  things  such 
as  wine,  eggs,  olive  oil,  rice,  skins,  tobacco,  shells, 
nails,  have  actually  been  employed  in  buying  and 
selling.  But  metals  are  found  to  serve  much  the  best 
for  several  reasons,  and  gold  and  silver  are  betttr 
for  the  purpose  than  any  of  the  other  metals.  The 
advantages  of  having  gold  and  silver  money  are 
evident  Such  metals  are  portable,  because  they 
are  so  valuable  that  a  small  weight  of  metal  equals  in 
value  a  great  weight  of  corn  or  timber  or  other  goods. 
Then  they  are  indestructible,  that  is,  they  do  not 
rot  like  timber,  nor  go  ba,d  like  eggs,  nor  sour  like 
wine;  thus  they  can  be  kept  for  any  length  of  time 
without  losing  their  value.  Another  convenience  is, 
that  there  is  no  difference  in  quality  in  the  metal 
itself;  pure  gold  is  always  the  same  as  pure  gold,  and 
v  though  it  may  be  mixed  with  more  or  less  base  metal, 
yet  we  can  assay  or  analyse  the  mixture,  and  ascertain 


xii.]  MONEY.  ,     107 

how  much  pure  metal  it  contains.  The  metals  are 
also  divisible ;  they  may  be  cut  or  coined  into  ^ 
pieces,  and  yet  the  pieces  taken  together  will  be  as 
valuable  as  before  they  were  cut  up.  It  is  a  further 
advantage  of  gold  and  silver  that  they  are  such 
beautiful,  brilliant  substances,  and  gold  is  also  so 
heavy  that  it  is  difficult  to  make  any  counterfeit  gold 
or  silver ;  with  a  little  experience  and  care,  every  one 
can  tell  whether  he  is  getting  real  money  or  not — 
when  the  money  is  made  of  gold  or  silver.  Finally,  it 
is  a  great  convenience  that  these  metals  do  not 
change  in  value  rapidly.  A  bad  harvest  makes 
corn  twice  as  dear  as  before,  and  destructible  things, 
like  eggs,  skins,  &c.,  are  always  rising  or  falling  in 
value.  But  gold  and  silver  change  slowly  in  value, 
because  they  last  so  long,  and  thus  the  new  supply 
got  in  any  one  year  is  very  little  compared  with  the 
whole  supply  or  stock  of  the  metal.  Nevertheless, 
gold  and  silver,  like  all  other  commodities, 
are  always  changing  in  value  more  or  less  * 
quickly. 

80.  "Metallic  Money.  Almost  all  the  common 
metals — copper,  iron,  tin,  lead,  £c. — have  been  used 
to  make  money  at  one  time  or  other,  besides  various 
mixtures,  such  as  brass,  pewter,  and  bronze.  But 
copper,  silver,  and  gold  have  been  found  far  more 
suitable  than  any  of  the  other  metals.  Copper,  indeed, 
being  comparatively  low  in  value,  is  wanting  in  por- 
tability. It  was  formerly  the  only  money  of  Sweden,  <5 
and  I  have  seen  a  piece  of  old  Swedish  money  con- 
sisting'of  a  plate  of  copper  about  two  feet  long  and 
one  foot  broad.  A  merchant  making  payments  in 
such  money  had  to  carry  his  money  about  in  a  wheel- 
barrow. Now  we  use  copper  only  for  coins  of  small 
value,  and  to  make  the  copper  harder,  it  is  melted 
up  with  tin  and  converted  into  bronze. 

In  the  Saxon  times  English  money  was  made  of 
silver  only,  but  this  was  inconvenient  both  for  very 
large  and  for  very  small  payments.  The  best  way  is 


io8         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

to  use  gold,  silver,  and  bronze  money  according  as 
each  is  convenient.  In  the  English  system  of 
money,  gold  is  the  standard  money  and  the 
legal  tender,  because  no  one  can  be  obliged  to 
receive  a  large  sum  of  money  in  any  other  metal.  If 
a  person  owes  a  hundred  pounds,  he  cannot  get  rid  of 
the  debt  without  tendering  or  offering  a  hundred 
pieces  of  coined  gold  to  his  creditor.  Silver  coin  is  a 
legal  tender  only  to  the  amount  of  forty  shillings— 
that  is,  no  creditor  can  be  obliged  to  receive  more 
than  forty  shillings  in  a  single  payment.  Similarly, 
bronze  coin  is  a  legal  tender  only  up  to  the  amount 
of  one  shilling  in  all. 

8 1.  What  is  a  Pound  Sterling?  In  England 
people  are  continually  paying  and  receiving  money  in 
pounds,  but  few  could  say  exactly  what  a  pound 
sterling  means.  No  doubt  it  is  represented  by  a  coin 
called  a  sovereign,  but  what  is  a  sovereign  ?  Strictly 
;speaking,  a  sovereign  is  a  piece  of  gold  coined, 
in  accordance  with  an  Act  of  Parliament,  at 
a  British  mint,  still  bearing  the  proper  stamp 
of  that  mint,  and  weighing  not  less  than  I22|- 
grains.  On  the  average  the  sovereigns  issued  from 
the  mint  ought  to  weigh  123-274  grains,  but  it  is 
impossible  to  make  each  coin  of  that  exact  weight, 
and  if  this  were  done,  the  coins  would  soon  be  lessened 
in  weight  by  wear.  A  sovereign  is  legal  tender  for  a 
pound  as  long  as  it  weighs  122^  grains  or  more,  and 
is  not  defaced ;  but,  in  reality,  people  are  in  the  habit 
of  paying  and  receiving  sovereigns,  which  are  several 
grains  less  in  weight  than  the  law  requires. 

Twenty  silver  shillings  are  by  law  to  be  received  as 
equal  in  value  to  a  pound.  This  is  necessary,  in  order 
that  we  may  be  able  to  pay  a  fraction  of  a  pound,  for  a 
coin  made  of  gold  equal  to  the  twentieth  part  of  a  pound 
would  easily  be  lost,  worn,  or  even  blown  away.  But 
the  silver  in  twenty  shillings  is  not  equal  in  value 
to  the  gold  in  a  pound;  its  value  varies  with  the 
-gold  price  of  silver,  and,  at  present,  twenty  shillings 


i.]  MONEY. 


are  only  worth  about  sixteen  gold  shillings  and  eight- 
pence,  that  is,  f  of  a  pound.  It  is  necessary  to  make 
the  silver  coin  thus  of  less  value  than  it  is  taken 
for,  in  order  to  render  it  unprofitable  to  melt  the 
coin.  In  the  same  way,  the  metal  in  a  bronze  penny 
is  worth  only  about  the  sixth  part  of  a  penny,  so  that 
people  would  lose  a  great  deal  by  melting  up  or 
destroying  pence. 

82.  Paper  Currency.  Instead  of  using  actual 
coins  of  gold,  silver,  or  bronze,  it  is  common  to  make 
use  of  paper  notes  containing  promises  to  pay  money. 
When  the  sum  of  money  to  be  paid  is  large,  a  bank 
note  is  much  more  convenient,  being  of  far  less 
weight  than  the  coins,  and  less  likely  to  be  stolen.  A 
five-pound  bank  note  is  a  promise  to  pay  five  pounds 
to  any  person  who  has  the  note  in  his  possession,  and 
who  asks  for  five  pounds  in  exchange  for  the  note  at 
the  office  of  the  bank  issuing  the  note.  A  conver- 
tible bank  note  is  one  which  actually  can  be  thus 
changed  into  the  coins  whenever  it  is  desired,  and  so 
long  as  this  is  really  the  case,  it  is  evident  that  the 
note  is  just  as  valuable  as  the  coins,  and  is  more 
convenient.'  The  only  fear  is  that,  if  a  banker  be 
allowed  to  issue  these  bank  notes,  he  will  not  always 
have  coins  enough  to  pay  them  when  presented 
Very  frequently  banks  have  been  obliged  to  stop 
payment  ;  that  is,  to  refuse  to  perform  their  promises. 
Nevertheless,  when  there  is  no  other  currency  to  be  had, 
the  bank  notes  often  go  on  circulating  like  money.  They 
are  then  called  inconvertible  notes,  and  there  is 
said  to  be  a  paper  money.  A  person  is  willing  to 
receive  paper  currency  in  exchange  for  goods,  if  he 
believes  that  other  people  will  take  it  from  him  again. 
But  such  paper  currency  is  very  bad,  because  its  value 
will  rise  or  fall  according  to  the  quantity  issued,  and 
people  who  owe  money  will  often  be  able  to  pay  their 
debts  with  less  value  than  they  received.  The  sub- 
ject of  bank  notes  and  paper  money,  however,  is  too 
difficult  for  us  to  pursue  in  this  Primer. 


no        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

CHAPTER    XIII. 
CREDIT   AND    BANKING. 

83.  'What  Credit  means.  It  is  very  important 
for  those  who  would  learn  political  economy  to 
understand  exactly  what  is  meant  by  credit.  John 
is  said  to  give  credit  to  Thomas  when  John  leaves 
some  of  his  property  in  the  use  of  Thomas,  expecting 
to  have  it  returned  at  a  future  time.  In  short,  any 

,  one  who  lends  a  thing  gives  credit,  and  he  who 
borrows  it  receives  credit.  The  word  credit 

v  means  belief,  and  John  believes  that  he  will  get 
back  his  property  from  Thomas,  though  this,  unfor- 
tunately, does  not  always  prove  to  be  the  case.  John 
is  called  the  creditor,  and  Thomas  the  debtor. 

It  is  not  common,  indeed,  to  speak  of  credit  in  the 
case  of  most  articles  :  when  a  man  borrows  a  horse,  a 
book,  a  house,  an  engine,  or  other  common  article, 
and  pays  for  its  use,  he  is  said  to  hire  it,  and  what 
he  pays  for  the  use  is  called  the  hire,  fare,  or  rent. 
In  some  countries,  where  coins  are  not  yet  used, 
people  lend  and  borrow  corn,  oil,  wine,  rice,  or  any 
common  commodity  which  all  like  to  possess.  In  the 
parts  of  Africa  where  palm  oil  is  produced  in  great 
quantities,  people  give  and  take  credit  in  oil.  But 
in  all  civilised  countries  it  has  become  the  practice 
to  borrow  and  lend  money.  If  a  man  needs  an 
engine,  and  has  nothing  to  buy  it  with,  he  goes  and 
borrows  money  enough  from  the  person  who  will  lend 
it  on  the  lowest  terms,  and  then  he  buys  the  engine 
where  he  can  get  it  most  cheaply.  Frequently,  indeed, 
the  man  who  sells  the  engine  will  give  credit  for  its 
price,  that  is,  will  lend  the  sum  of  money  to  the  buyer, 
just  sufficient  to  enable  him  to  buy  it. 

Credit  is  a  very  important  thing,  because,  when 
properly  employed,  it  enables  property  to  be  put 
into  the  hands  of  those  who  will  make  the 
best  use  of  it.  Many  people  have  property  but  are 


XIIL]  CREDIT  AND  BANKING.  m, 

unable  to  go  into  business,  as  is  the  case  with  women, 
children,  old  men,  invalids,  &c.  Rich  people  perhaps 
have  so  much  property  that  they  do  not  care  to  trouble 
themselves  with  business,  if  they  can  get  others  to  take 
the  troubje  for  them.  Even  those  who  are  engaged  in 
business  often  have  sums  of  money  which  they  do  not 
immediately  want  to  use,  and  which  they  are  willing 
to  lend  for  a  short  time.  On  the  other  hand,  there 
are  many  clever  active  men,  who  could  do  a  great  deal 
of  work  in  establishing  manufactories,  sinking  mines, 
or  trading  in  goods,  if  they  only  had  enough  money  to 
enable  them  to  buy  the  requisite  materials,  tools, 
buildings,  land,  £c.  A  man  must  have  some  property 
of  his  own  before  he  can  expect  to  get  credit ;  but 
with  some  property  to  fall  back  upon  in  case  of  need, 
and  with  a  good  character  for  honesty  and  ability,  a 
trader  can  by  credit  obtain  other  people's  capital  to 
deal  with. 

84.  Loans  on  Mortgage.  Credit  is  given  in 
many  different  ways ;  sometimes  a  man  is  assisted  by 
a  permanent  loan  from  a  relative  or  friend  who  has 
confidence  in  him.  Enormous  sums  of  money  are 
lent,  as  it  is  called,  upon  mortgage.  A  man,  for 
instance,  who  has  built  a  cotton  mill  with-  his  own 
money,  pledges  the  mill  as  security  for  a  loan,  that  is, 
he  gives  his  creditor  a  right  to  sell  the  mill  unless  the 
debt  is  paid  when  required.  The  mill  is  called  a 
mortgage  or  dead  pledge,  because  it  becomes 
dead  to  the  former  owner,  if  he  breaks  the  conditions 
of  the  loan.  There  are  many  institutions,  such  as. 
insurance  companies,  building  societies,  &c.,  which 
have  a  great  deal  of  capital  to  lend  on  mortgage,  and 
many  rich  people  invest  their  money  in  the  same  way. 
Thus  a  very  large  part  of  the  houses,  land,  factories, 
shops,  £c.,  are  not  really  owned  by  the  people  who 
seem  to  own  them,  but  by  mortgagees,  who  have 
lent  money  on  them. 

Generally  speaking,  the  interest  paid  for  such  loans 
is  4^  or  5  per  cent,  per  annum,  when  the  security  is 


1 1 2         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

quite  good,  that  is,  when  the  property  mortgaged  is 
sure  to  sell  for  more  than  is  lent  upon  it.  A  consider- 
able margin  is  always  left  to  cover  mistakes  or  alter- 
ations as  regards  the  value  of  the  property ;  thus,  if  a 
house  be  said  to  be  worth  ^1000,  it  will  usually  be 
security  only  for  a  debt  of  ^700  or  ;£8oo.  When 
the  security  is  not  so  good,  because  the  ownership  or 
the  value  of  the  property  mortgaged  is  doubtful,  the 
rate  of  interest  charged  will  be  higher,  and  may  be 
six,  seven,  or  more  per  cent.  The  surplus  covers  the 
risk,  that  is,  compensates  the  lender,  for  the  chance  of 
losing  what  he  lends.  Mortgage  loans  are  generally 
made  upon  fixed  capital  like  houses,  mills,  ships,  &c., 
which  last  a  long  time  ;  but  sometimes  stocks  of  goods, 
such  as  cotton,  wine,  corn,  &c.,  are  mortgaged  as 
security  for  temporary  loans. 

85.  Banking.  A  large  part  of  the  credit  given,  in 
a  civilised  country,  is  given  by  bankers,  who  may  be 
said  to  deal  in  credit,  or  which  comes  to  the  same 
thing,  in  debt.  A  banker  usually  carries  on  three 
or  four  different  kinds  of  work,  but  his  proper  work 
is  that  of  borrowing  from  persons  who  have  ready 
money  to  lend,  and  lending  it  to  those  who  want 
to  buy  goods.  As  a  shopkeeper  sells  his  stock  of 
goods,  he  receives  money  for  it.  And,  until  he 
buys  a  new  stock,  he  has  no  immediate  need  of  this 
money.  Those,  again,  who  receive  salaries,  dividends, 
rents,  or  other  payments  once  a  quarter,  do  not  usually 
want  to  spend  the  whole  at  once.  Instead  of  keeping 
such  money  in  a  house,  where  it  pays  no  interest  and 
is  liable  to  be  stolen,  lost,  or  burnt,  it  is  much  better 
to  deposit  it  with  a  banker,  that  is,  to  lend  it  to  a 
banker  who  will  undertake  to  pay  it  back  when  it  is 
wanted.  Generally  speaking  a  merchant,  manufacturer, 
or  tradesman  sends  to  his  banker  every  day  the  money 
which  he  has  received,  and  only  keeps  a  few  pounds 
to  give  change  or  make  petty  payments.  The  advan- 
tages of  thus  depositing  money  with  the  banker  are 
<chiefly  as  follows  : — 


xiii.]  CREDIT  AND  BANKING  j 13 

(i.)  The  money  is  safe,  as  the  banker  provides 
strong  rooms,  locked  and  guarded  at  night. 

(2.)  It  is  easy  to  pay  the  money  away  by  means  of 
cheques  or  written  orders  entitling  the  persons  named 
therein  to  demand  a  specified  sum  of  money  from  the 
banker. 

(3.)  The  banker  usually  allows  some  interest  for  the 
money  in  his  care. 

Bankers  receive  deposits  on  various  terms;  some- 
times the  depositor  engages  to  give  seven  days'  notice 
before  withdrawing  his  deposit ;  in  other  cases  the 
money  is  lent  to  the  banker  for  one,  three,  or  six 
months  certain,  and  the  longer  the  time  for  which  it  is 
lent  the  better  the  rate  of  interest  the  banker  can 
usually  give.  But  a  great  deal  of  money  is  deposited 
on  current  account,  that  is,  the  customer  puts  his 
money  into  the  bank,  and  draws  it  out  just  when  he 
likes,  without  notice.  In  this  case  the  banker  gives 
very  little  interest,  or  none  at  all,  because  he  has  to 
keep  much  of  the  money  ready  for  his  customers,  not 
knowing  when  it  will  be  wanted. 

Nevertheless,  while  some  depositors  are  drawing 
their  money  out,  others  will  be  putting  more  in,  and  it 
is  exceedingly  unlikely  that  all  the  thousands  of  cus- 
tomers of  a  large  bank  will  want  their  deposits  at  the 
same  time.  Thus  it  happens  that  the  banker,  in  addi- 
tion to  his  own  capital,  has  a  large  stock  of  money 
always  on  hand,  and  he  makes  profit  by  lending  out 
this  money  to  other  customers,  who  need  credit. 

There  are  various  ways  in  which  a  banker  arranges 
his  loans  ;  sometimes  he  lends  upon  the  mortgage  of 
goods,  houses,  and  other  property,  or  of  shares  in 
railways  and  government  funds,  in  the  way  described ; 
but  this  is  not  a  proper  way  for  a  banker  to  employ 
much  of  his  funds,  because  he  may  not  be  able  to  get 
back  such  loans  rapidly  enough  when  he  needs  them. 
One  of  the  simplest  ways  of  lending  money  is  to  allow 
customers  to  overdraw  their  accounts,  that  is,  to  draw 
more  money  out  of  the  bank  than  they  have  put  in. 


II4         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

But  a  banker  naturally  takes  care  not  to  allow  over- 
drafts unless  he  has  great  confidence  in  his  customer, 
or  has  received  a  guarantee  of  repayment  from  him  or 
his  friends. 

86.  Discount  of  Bills.  The  most  common  and 
proper  way  in  which  a  banker  gives  credit  and  em- 
ploys his  funds  is  in  the  discount  of  bills,  that  is,  in 
advancing  money  in  exchange  for  a  definite  promise 
to  pay  it  back  at  a  stated  time.  Suppose  that  John 
Smith  has  sold  a  thousand  pounds  worth  of  cotton 
goods  to  Thomas  Jones,  a  shopkeeper ;  several 
months  will  pass  perhaps  before  Jones  can  sell  the 
goods  over  the  counter,  and  if  he  has  not  much 
capital,  he  agrees  that  John  Smith  shall  give  credit 
for  the  thousand  pounds,  but  in  the  mean  time  draw 
a  bill  upon  Jones.  This  bill  would  very  likely  be 
somewhat  in  this  form — 

LONDON,  1st  February,  1878. 
£1000,  os.  od. 

Three  months  after  date  pay  to  me  or  my  order  the 
sum  of  one  thousand  pounds,  value  received. 

JOHN  SMITH. 
To  Mr.  Thomas  Jones. 

John  Smith  is  said  to  be  the  drawer  of  the  bill ; 
Thomas  Jones  is  the  drawee,  and  the  bill  amounts 
to  a  claim  on  the  part  of  John  Smith  that  Thomas 
Jones  owes  him  the  sum  named.  If  the  drawee 
acknowledges  that  this  is  the  case,  he  signifies  it  when 
the  bill  is  presented  to  him,  by  writing  on  the  back 
the  word  "  accepted,"  together  with  his  name. 

Now  if  the  'drawer  and  drawee  of  a  bill  are  persons 
of  good  credit,  a  banker  will  readily  discount  such  a 
bill,  that  is,  buy  it  up  for  the  sum  due,  after  subtracting 
interest  at  the  rate  of  say  five  per  cent,  per  annum  for 
the  length  of  time  the  bill  has  to  run.  The  bill  forms 
good  security,  because,  when  accepted,  John  Smith  is 
bound  to  pay  the  thousand  pounds  when  due,  and  if, 
he  fails,  the  drawee  is  liable.  Such  bills  are  often 


xiu. ]  CREDIT  AND  BANKING.  I  r  5 

bought  by  one  person  after  another,  being  endorsed 
by  each  to  the  next,  that  is,  impressed  with  an  order 
that  the  money  shall  be  paid  to  the  next  person, 
named.  When  due  the  last  owner  must  claim  the 
money  from  John  Smith,  and  if  he  refuses  to 
pay,  each  owner  has  a  claim  upon  the  previous 
owners. 


CHAPTER  XIV. 
CREDIT    CYCLES. 

87.  Industry  is  Periodic.  Everybody  ought  to 
understand  that  trade  varies  in  activity,  from  time 
to  time,  in  a  periodic  manner.  A  thing  is  said  to 
vary  periodically,  when  it  comes  and  goes  at 
nearly  equal  intervals  like  the  sun,  or  rises  and 
falls  like  the  tides.  Now,  in  industry,  as  Mr.  William 
Langton  pointed  out  twenty  years  ago,  there  are  tides 
almost  as  regular  as  those  of  the  sea.  Shakespeare 
says  truly — 

"  There  is  a  tide  in  the  affairs  of  men, 
\Vhich,  taken  at  the  flood,  leads  on  to  fortune." 

Some  of  these  tides  depend  upon  the  seasons  of  the 
year ;  business  is  more  active  in  the  spring  and  sum- 
mer, and  falls  off  in  winter.  It  is  comparatively  easy 
to  borrow  money  in  January,  February,  March,  June, 
July,  August,  and  September ;  October  and  November 
are  particularly  bad  months ;  the  rate  of  interest  then 
often  runs  up  rapidly,  and  the  bankruptcies  in  these 
months  are  more  numerous  than  at  any -other  time  of 
year.  April  and  May  are  also  dangerous  months,  but 
in  a  less  degree.  Men  of  business  should  always  bear 
these  facts  in  mind,  and,  by  being  prepared  before- 
hand, they  may  escape  disaster. 

There  is  also  a  much  longer  kind  of  tide  in  business, 
which  usually  takes  somewhere  about  ten  years  to  rise 
and  fall.  The  cause  of  this  tide  is  not  well  understood, 


Il6         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

but  there  can  be  no  doubt  that  in  some  years  men 
become  confident  and  hopeful.  They  think  that  the 
country  is  going  to  be  very  prosperous,  and  that  if 
they  invest  their  capital  in  new  factories,  banks,  rail- 
ways, ships,  or  other  enterprises,  they  will  make  much 
profit.  When  some  people  are  thus  hopeful,  others 
readily  become  so  too,  just  as  a  few  cheerful  people  in 
a  party  make  everybody  cheerful.  Thus  the  hopeful- 
ness gradually  spreads  itself  through  all  the  trades  of 
the  country.  Clever  men  then  propose  schemes  for 
new  inventions  and  novel  undertakings,  and  they  find 
that  they  can  readily  get  capitalists  to  subscribe  for 
shares.  This  encourages  other  speculators  to  put 
forth  proposals,  and  when  the  shares  of  some  com- 
panies have  risen  in  value,  it  is  supposed  that  other 
shares  will  do  so  likewise.  The  most  absurd  schemes 
find  supporters  in  a  time  of  great  hopefulness, 
and  there  thus  arises  what  is  called  a  bubble  or 
mania. 

88.  Commercial  Bubbles  or  Manias.  When 
the  schemes  started  during  a  bubble  begin  to  be  carried 
out,  great  quantities  of  materials  are  required  for 
building,  and  the  prices  of  these  materials  rise  rapidly. 
The  workpeople  who  produce  these  materials  then 
earn  high  wages,  and  they  spend  these  wages  in  better 
living,  in  pleasure,  or  in  buying  an  unusual  quantity 
of  new  clothes,  furniture,  &c.  Thus  the  demand  for 
commodities  increases,  and  tradespeople  make  large 
profits.  Even  when  there  is  no  sufficient  reason,  the 
prices  of  the  remaining  commodities  usually  rise,  as  it 
is  called,  by  sympathy,  because  those  who  deal  in 
them  think  their  goods  will  probably  rise  like  other 
goods,  and  they  buy  up  stocks  in  the  hope  of  making 
profits.  Every  trader  now  wants  to  buy,  because  he 
believes  that  prices  will  rise  higher  and  higher,  and 
that,  by  selling  at  the  right  time,  the  loss  of  any 
subsequent  fall  of  prices  will  be  thrown  upon  other 
people. 

This  state  of  things,  however,  cannot  go  on  very 


xiv.  ]  CREDIT  C  YCLES.  .  117 

long.  Those  who  have  subscribed  for  shares  in  new 
companies  have  to  pay  up  the  calls,  that  is,  find 
the  capital  which  they  promised.  They  are  obliged 
to  draw  out  the  money  which  they  had  formerly 
deposited  in  banks,  and  then  the  bankers  have  less  to 
lend.  Manufacturers,  merchants,  and  speculators, 
who  are  making  or  buying  large  stocks  of  goods,  wish 
to  borrow  more  and  more  money,  in  order  that  they 
may  have  a  larger  business,  the  profit  seeming  likely  to 
be  so  great.  Then  according  to  the  laws  of  supply 
and  demand,  the  price  of  money  rises,  which  means 
that  the  rate  of  interest  for  short  loans,  from  a  week 
to  three  or  six  months  in  duration,  is  increased.  The 
bubble  goes  on  growing,  until  the  more  venturesome 
and  unscrupulous  speculators  have  borrowed  many 
times  as  much  money  as  they  themselves  really  pos- 
sess. Credit  is  said  to  be  greatly  extended, 
and  a  firm,  which  perhaps  owns  a  capital  worth  ten 
thousand  pounds,  will  have  undertaken  to  pay  two  or 
three  hundred  thousand  pounds,  for  the  goods  which 
they  have  bought  on  speculation. 

But  the  sudden  rise  which,  sooner  or  later,  occurs 
in  the  rate  of  interest,  is  very  disastrous  to  such  specu- 
lators ;  when  they  began  to  speculate  interest  was, 
perhaps,  only  two  or  three  per  cent. ;  but  when  it  be- 
comes seven  or  eight  per  cent,  there  is  fear  that  much 
of  the  profit  will  go  in  interest  paid  to  the  lenders  of 
capital.  Moreover,  those  who  lent  the  money,  by  dis- 
counting the  speculators'  bills,  or  making  advances  on 
the  security  of  goods,  become  anxious  to  have  it  paid 
back.  Thus  the  speculators  are  forced  at  last  to 
begin  selling  their  stocks,  at  the  best  prices  they  can 
get.  As  soon  as  some  people  begin  to  sell  in  this 
way,  others  who  hold  goods  think  they  had  better  sell 
before  the  prices  fall  seriously ;  then  there  arises  g. 
sudden  rush  to  sell,  and  buyers  being  alarmed,  refuse 
to  buy  except  at  much  reduced  rates.  The  bad  specu- 
lators now  find  themselves  unable  to  maintain  their 
credit,  because,  if  they  sell  their  large  stocks  at  a  con- 


Il8         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

siderable  loss,  their  own  real  capital  will  be  quite 
insufficient  to  cover  this  loss.  They  are  thus  unable 
to  pay  what  they  have  engaged  to  pay,  and  stop  pay- 
ment, or,  in  other  words,  become  bankrupt.  This  is 
very  awkward  for  other  people,  manufacturers,  for  in- 
stance, who  had  sold  goods  to  the  bankrupts  on  credit ; 
they  do  not  receive  the  money  they  expected,  and  as 
they  also  perhaps  have  borrowed  money  while  making 
the  goods,  they  become  bankrupt  likewise.  Thus  the 
discredit  spreads,  and  firms  even  which  had  borrowed 
only  moderate  sums  of  money,  in  proportion  to  their 
capital,  are  in  danger  of  failing. 

89.  Commercial  Crisis  or  Collapse,  The  state 
of  things  described  in  the  last  section  is  called  a  com- 
mercial collapse,  because  there  is  a  sudden  falling 
in  of  prices,  credit,  and  enterprise.  It  is 
also  called  a  Crisis,  that  is,  a  dangerous  and 
decisive  moment  (Greek,  /cptVw,  to  decide),  when 
it  will  soon  be  seen  who  is  to  become  bankrupt, 
and  who  not  No  sooner  has  such  a  crisis  arrived, 
than  everything  changes.  No  one  ventures  to  propose 
a  new  scheme,  or  a  new  company,  because  he  knows 
that  people  in  general  have  great  difficulty  in  paying 
up  what  they  promised  to  the  schemes  started  during 
the  bubble.  This  bubble  is  now  burst,  and  it  is 
found  that  many  of  the  new  works  and  undertakings 
from  which  people  expected  so  much  profit,  are  absurd 
and  hopeless  mistakes.  It  was  proposed  to  make 
railways  where  there  was  nothing  to  carry ;  to  sink 
mines  where  there  was  no  coal  nor  metal ;  to  build 
ships  which  would  not  sail ;  all  kinds  of  impracticable 
schemes  have  to  be  given  up,  and  the  capital  spent 
upon  them  is  lost. 

Not  only  does  this  collapse  ruin  many  of  the 
subscribers  to  these  schemes,  but  it  presently  causes 
workpeople  to  be  thrown  out  of  employment.  The 
more  successful  schemes  indeed  are  carried  out,  and, 
for  a  year  or  two,  give  employment  to  builders,  iron- 
manufacturers,  and  others,  who  furnish  the  materials. 


xiv.  ]  CREDIT  C YCLES.  1 1 9 

But  as  these  schemes  are  completed  by  degrees,  no 
one  ventures  to  propose  new  ones  ;  people  have  been 
frightened  by  the  losses  and  bankruptcies  and  frauds 
brought  to  light  in  the  collapse,  and  when  some 
people  are  afraid,  others  readily  become  frightened 
likewise  by  sympathy.  In.  matters  of  this  kind  men 
of  business  are  much  like  a  flock  of  sheep  which  fol- 
low each  other  without  any  clear  idea  why  they  do  so. 
In  a  year  or  two  the  prices  of  iron,  coal,  timber,  &c., 
are  reduced  to  the  lowest  point ;  great  losses  are 
suffered  by  those  who  make  or  deal  in  such  materials, 
and  many  workmen  are  out  of  employment.  The 
working  classes  then  have  less  to  spend  on  luxuries, 
and  the  demand  for  other  goods  decreases ;  trade  in 
general  becomes  depressed  ;  many  people  find  them- 
selves paupers,  or  spend  their  savings  accumulated 
during  previous  years.  Such  a  state  of  depression 
may  continue  for  two  or  three  years,  until  speculators 
have  begun  to  forget  their  failures,  or  a  new  set  of 
younger  men,  unacquainted  with  disaster,  think  they 
see  a  way  to  make  profits.  During  such  a  period  of 
depression,  too,  the  richer  people  who  have  more  in- 
come than  they  spend,  save  it  up  in  the  banks. 
Business  men  as  they  sell  off  their  stocks  of  goods 
leave  the  money  received  in  the  banks ;  thus  by 
degrees  capital  becomes  abundant,  and  the  rate  of 
interest  falls.  After  a  time  bankers,  who  were  so 
very  cautious  at  the  time  of  the  collapse,  find  it  neces- 
sary to  lend  their  increasing  funds,  and  credit  is 
improved.  Then  begins  a  new  credit  cycle,  which 
probably  goes  through  much  the  same  course  as  the 
previous  one. 

90.  Commercial  Crises  are  Periodic.  It- 
would  be  a  very  useful  thing  if  we  were  able  to  foretell 
when  a  bubble  or  a  crisis  was  coming,  but  it  is  evidently 
impossible  to  predict  such  matters  with  certainty.  All 
kinds  of  events — wars,  revolutions,  new  discoveries, 
treaties  of  commerce,  bad  or  good  harvests,  &c. — may 
occur  to  decrease  or  increase  the  activity  of  trade. 
11 


120        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

Nevertheless,  it  is  wonderful  how  often  a  great 
commercial  crisis  has  happened  about  ten 
years  after  the  previous  one.  During  the  last 
century,  when  trade  was  so  different  from  what  it  now 
is,  there  were  crises  in  or  near  the  years  1753,  1763, 
1772  or  '3,  1783,  and  1793.  In  this  century  there 
have  been  crises  in  the  years  1815,  1825,  1836-9, 
1847,  1857,  1866,  and  there  would  probably  have 
been  a  crisis  in  1876  or  1877  had  it  not  been  for  an 
exceptional  collapse  in  America  in  1873.  There  is 
at  present  (February,  1878)  the  great  depression  of 
trade  which  marks  the  completion  of  one  cycle  and 
the  commencement  of  a  new  one. 

Good  vintage  years  on  the  continent  of  Europe, 
and  droughts  in  India,  recur  every  ten  or  eleven  years, 
and  it  seems  probable  that  commercial  crises  are 
connected  with  a  periodic  variation  of  weather,  affect- 
ing all  parts  of  the  earth,  and  probably  arising  from 
increased  waves  of  heat  received  from  the  sun  at 
average  intervals  of  ten  years  and  a  fraction.  A 
greater  supply  of  heat  increases  the  harvests,  makes 
capital  more  abundant  and  trade  more  successful,  and 
thus  helps  to  create  the  hopefulness  out  of  which  a 
bubble  arises.  A  falling  off  in  the  sun's  heat 
makes  bad  harvests  and  deranges  many  enterprises 
in  different  parts  of  the  world.  This  is  likely  to 
break  the  bubble  and  bring  on  a  commercial 
collapse. 

Generally,  a  credit  cycle,  as  Mr.  John  Mills  of 
Manchester  has  called  it,  will  last  about  ten  years. 
The  first  three  years  will  witness  depressed  trade, 
with  want  of  employment,  falling  prices,  low  rate  of 
interest,  and  much  poverty;  then  there  will  be  perhaps 
three  years  of  active,  healthy  trade,  with  moderately- 
rising  prices,  a  reasonable  rate  of  interest,  fair  employ- 
ment, and  improving  credit;  then  come  some  years  of 
unduly-excited  trade,  turning  into  a  bubble  or  mania, 
and  ending  in  a  collapse,  as  already  described.  This 
collapse  will  occupy  the  last  of  the  ten  years,  so  that 


IV.] 


CREDIT  CYCLES. 


121 


the  whole  credit  cycle  will,  on  the  average,  be  as 
follows : — 


YEARS. 

i    1    2        3 

4    1    5    1    6 

7    1    8    |    9 

10 

DEPRESSED- 

HEALTHY 

EXCITED 

1 

| 

TRADE. 

TRADE.     - 

TRADE. 

1 

3 

It  is  not  to  be  supposed  that  things  go  as 
regularly  as  is  here  stated;  sometimes  the  cycle 
lasts  only  nine,  or  even  eight  years,  instead  of  ten; 
minor  bubbles  and  crises  sometimes  happen  in  the 
course  of  the  cycle,  and  disturb  its  regularity.     Never- u 
theless,  it  is  wonderful  how  often  the  great  collapse  |J 
comes  at  the  end  of  the  cycle,  in  spite  of  war  or  peace// 

other  interfering  causes. 

91.  How  to  avoid  Loss  by  Crises.  Now, 
these  bubbles  and  crises  are  very  disastrous  things; 
they  lead  to  the  ruin  of  many  people,  and  there  are  few 
old  families  who  have  not  lost  money  at  one  collapse  or 
another.  The  working-classes  are  often  much  injured; 
many  are  thrown  out  of  employment,  and  others,  not 
seeing  why  their  wages  should  be  reduced,  make 
things  worse  by  strikes,  which,  after  a  collapse,  cannot 
possibly  succeed.  It  is  most  important,  therefore, 
that  all  people — working-people,  capitalists,  specu- 
lators, and  all  connected  with  any  kind  of  business — 
should  remember  that  very  prosperous  trade  is 
sure  to  be  followed  by  a  collapse  and  by 
bad  trade.  When,  therefore,  things  look  particularly 
promising,  investors  should  be  unusually  careful  into 
what  undertakings  they  put  their  money.  As  a 
general  rule,  it  is  foolish  to  do  just  what 
other  people  are  doing,  because  there  are 
almost  sure  to  be  too  many  people  doing 
the  same  thing.  If,  for  instance,  the  price  of  coal 
rises  high,  and  coal-owners  make  large  profits,  there 


122         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

are  certain  to  be  many  people  sinking  new  mines. 
Such  a  time  is  just  the  worst  one  for  buying  shares  in 
a  coal-mine,  because,  in  the  course  of  a  few  years, 
there  will  be  a  multitude  of  new  mines  opened,  the 
next  collapse  of  trade  will  decrease  the  demand  for 
coal,  and  then  there  will  be  great  losses  in  the  coal 
business.  This  is  what  has  happened  in  the  last  few 
years  in  England,  and  the  same  thing  has  happened 
over  and  over  again  in  other  trades,  As  a  general 
rule,  the  best  time  to  begin  a  new  factory, 
mine,  or  business  of  any  kind,  is  when  the 
trade  is  depressed,  and  when  wages  and 
interest  are  low.  Mining,  building,  or  other 
work  can  then  be  done  more  cheaply  than  at  other 
times,  and  the  new  works  will  be  ready  to  start  just 
when  business  is  becoming  active  and  there  are  few 
other  new  works  opening. 

This  rule,  indeed,  does  not  apply  to  the  schemers, 
speculators,  or  promoters,  as  they  are  called,  who 
start  so  many  companies.  These  people  make  it  their 
business  to  have  new  schemes  and  shares  to  offer  just 
when  people  are  in  a  mind  to  buy,  that  is,  during  a 
bubble  or  time  of  excited  trade.  They  take  care  to 
sell  their  own  shares  before  the  collapse  comes,  and  it 
is  their  dupes  who  bear  all  the  loss.  A  prudent  man, 
therefore,  would  never  invest  in  any  new  thing  during 
a  mania  or  bubble ;  on  the  contrary,  he  would  sell  all 
property  of  a  doubtful  or  speculative  value,  when  its 
price  is  high,  and  invest  it  in  the  very  best  shares  or 
government  funds,  of  which  the  value  cannot  fall  much 
during  the  coming  collapse.  The  wisest  men  have 
been  deluded  during  manias;  and  in  the  Library  of  the 
Royal  Society  is  shown  a  letter  from  Sir  Isaac  Newton 
requesting  a  friend  to  buy  shares  for  him  in  the  South 
Sea  Company,  just  at  the  moment  when  the  South  Sea 
Bubble  was  at  its  worst.  Let  people  take  warning  by 
Sir  Isaac  Newton,  and  never  speculate  in  a  thing 
because  other  people  are  doing  the  same ;  then  these 
bubbles  and  collapses  will  be  prevented,  or  will  become 


xiv.]  CREDIT  CYCLES.  123 

much  less  disastrous.  Credit  cycles  will  go  on  until 
the  public  learn  to  look  out  for  them,  and  act  accord- 
ingly. Business  men  must  become  bold  during  de- 
pressed trade,  careful  during  excited  trade,  instead  of 
acting  exactly  in  the  opposite  way.  It  is  only  a  know- 
ledge, of  these  credit  cycles  which  can  prevent  them, 
and  this  is  the  reason  why  I  have  said  so  much  about 
them  in  this  Primer. 


CHAPTER  XV. 
THE   FUNCTIONS   OF   GOVERNMENT. 

92.  Functions  mean  performances  (Latin,  fungi, 
fiinctus,  to  perform),  and  the  functions  of  government 
mean  those  things  which  a  government  ought  to  do, 
— the  duties  which  it  undertakes  to  perform,  or  the 
services  which  it  may  be  expected  to  render  to  the 
people  governed.  These  functions  are  commonly 
divided  into  two  classes — 

(1)  The  necessary  functions. 

(2)  The  optional  functions. 

The  necessary  functions  of  a  government  are 
such  as  it  is  obliged  to  undertake ;  thus  it  must  defend 
the  nation  against  foreign  enemies,  it  must  keep  trie 
peace  within  the  country,  and  prevent  insurrections' 
which  might  threaten  the  existence  of  the  government 
itself;  it  must  also  punish  evildoers  who  break  the 
laws,  and  try  to  become  rich  by  robbery ;  it  must  also 
maintain  law  courts  in  which  the  disputes  of  its  subjects 
can  be  fairly  decided,  and  set  at  rest.  These  are  far 
from  being  all  the  necessary  functions. 

The  optional  functions  of  government  consist 
of  those  kinds  of  work  which  a  government  can 
execute  with  advantage,  such  as  providing  a  good  . 
currency,  establishing  a  uniform  system  of  weights  and 
measures,  constructing  and  maintaining  the  roads, 
carrying  letters  through  a  national  post  office,  keeping 
up  a  national  observatory  and  a  meteorological  office, 


124        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

&c.  The  optional  functions  are  in  fact  very  numerous, 
and  there  is  hardly  any  end  to  the  things  which  one 
government  or  another  has  provided  for  the  people. 
It  would  be  a  most  important  work,  if  it  were  possible, 
to  decide  exactly  what  undertakings  a  government 
J  should  take  upon  itself,  and  what  it  should  leave  to  the 
free  action  of  other  people ;  but  it  is  impossible  to  lay 
down  any  precise  rules  upon  this  subject.  The  char- 
acters and  habits  and  circumstances  of  nations  differ 
so  much,  that  what  is  good  in  one  case  might  be  bad 
in  another.  Thus  in  Russia  the  government  makes 
all  the  railways,  and  the  same  is  the  case  in  the 
Australian  States ;  but  it  does  not  at  all  follow  that, 
because  this  is  necessary  or  desirable  in  those  coun- 
tries, therefore  it  is  desirable  in  England,  or  Ireland, 
or  the  United  States.  Experience  shows  that  though 
the  English  Post  Office  is  very  profitable,  the  Postal 
Telegraphs  cannot  at  present  be  made  to  pay.  There 
can  be  no  doubt  that  it  would  be  altogether 
I  ruinous  to  put  the  enormous  system  of 
V  English  railways  under  the  management 
of  government  officers.  Each  case  has  thus  to 
be  judged  upon  its  own  merits,  and  all  that  the 
political  economist  can  do  is  to  point  out  the  general 
advantages  and  disadvantages  of  government  manage- 
ment. 

93.  The  Advantage  of  Government  Man- 
agement. There  is  often  immense  economy  in  having 
a  single  establishment  to  do  a  certain  kind  of  work 
for  the  whole  country.  For  instance,  a  weather  office 
in  London  can  get  daily  telegraphic  reports  of  the 
weather  in  all  parts  of  the  kingdom  and  many  parts  of 
Europe;  combining  and  comparing  these  reports  it 
can  form  a  much  better  opinion  about  the  coming 
weather  than  would  be  possible  to  private  persons,  and 
this  opinion  can  be  rapidly  made  known  by  the  tele- 
graph and  newspapers.  The  few  thousand  pounds 
spent  by  the  government  yearly  on  the  meteorological 
office  are  inconsiderable  compared  with  the  services 


xv.]        THE  FUNCTIONS  OF  GOVERNMENT. 


',35 


which  it  may  render  to  the  public  by  preventing  ship- 
wrecks, colliery  explosions,  and  other  great  disasters 
and  inconveniences  which  often  arise  from  our  ignor- 
ance of  the  coming  weather.  It  is  certainly  proper 
then  to  make  meteorological  observation  one  of  the 
functions  of  government 

Great  economy  would  arise,  again,  if  an  establish- 
ment like  the  post-office  were  created  in  Great  Britain 
in  order  to  convey  small  goods  and  parcels.  At 
present  there  are  a  great  number  of  parcel  companies, 
but  they  often  send  a  cart  a  long  way  to  deliver  a 
single  parcel.  In  London  some  half  a  dozen  indepen- 
dent companies  send  carts  all  over  the  immense  town ; 
each  of  the  chief  railway  companies  has  its  own  system 
of  delivering  parcels,  and  the  larger  shops  have  their 
own  delivery  vans  as  well.  Thus  there  is  an  enormous 
loss  of  horse  power  and  men's  time.  If  a  government 
postal  system  undertook  the  work,  only  one  cart  would 
deliver  goods  in  each  street,  and  as  there  might  be  a 
parcel  for  almost  every  house,  or  sometimes  several, 
there  would  be  an  almost  incredible  saving  in  the 
distance  travelled  and  the  time  taken  up.  This  illus- 
trates the  economy  which  may  arise  from  government 
management 

94.  The  Disadvantage  of  Government 
Management.  On  the  other  hand  there  is  great  evil 
in  the  government  undertaking  any  work  which  can  be  : 
fairly  done  by  private  persons  or  companies.  Officers 
of  the  government  are  seldom  dismissed  when  once 
employed,  or,  if  turned  away,  they  receive  pensions. 
Thus  when  the  government  establishes  any  new  work, 
it  cannot  stop  it  without  great  expense,  and  the  work 
is  usually  carried  on  whether  it  is  done  economically 
or  not.  Then  again,  government  officers,  knowing 
that  they  will  not  be  dismissed  without  a  pension,  are 
commonly  less  active  and  careful  than  men  in  private 
employment.  For  the  work  which  they  do  they  are 
paid  at  a  higher  rate  than  in  private  establishments. 

It  is  therefore  very  undesirable  that  the  Government 


I26        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

should  take  any  kind  of  work  into  its  own  hands,  un- 
less it  is  perfectly  clear  that  the  work  will  be  done 
much  better,  and  more  cheaply  than  private  persons 
could  do  it.  There  is  a  balance  of  advantages  and 
disadvantages  to  be  considered  :  the  advantage  of  a 
single  great  establishment  with  plenty  of  funds;  and 
the  disadvantage  that  work  is  always  done  more  ex- 
pensively by  Government.  In  the  case  of  the  post- 
office,  the  advantages  greatly  outweigh  the  disad- 
vantages ;  the  same  would  probably  be  the  case  with 
a  well-arranged  parcel  post ;  in  the  postal  telegraphs, 
there  are  many  advantages,  but  they  are  obtained  at  a 
considerable  loss  of  revenue.  If  the  state  were  to  buy 
up  and  manage  the  railways  of  Great  Britain,  the  ad- 
vantages would  be  comparatively  small,  but  the  losses 
would  be  enormous.  In  America  the  express  or  par- 
cel companies  are  so  admirably  managed  that  they  do 
the  work  more  safely  and  better  than  the  Government 
post  office.  There  can  be  little  doubt,  too,  that  the 
American  railways  and  telegraphs  are  far  better  man- 
aged now  than  they  would  be  if  acquired  by  the  Federal 
Government. 


CHAPTER  XVI. 
TAXATION. 

95.  There  must  be  Taxes.  Whether  govern- 
ments undertake  more  or  less  functions,  it  is  certain  that 
we  must  have  some  kind  of  government,  and  that  this 
government  will  spend  a  great  deal  of  money.  This 
money,  too,  can  very  seldom  be  obtained  in  the  form 
of  real  profit  on  the  work  done,  so  that  it  must  be 
raised  by  taxation.  We  generally  apply  the  name  tax 
to  any  payment  required  from  individuals  towards  the 
expenses  of  the  local  or  general  government.  We  may 
easily  indeed  be  taxed  without  being  aware  of  it ;  thus, 
nearly  the  half  of  every  penny  paid  for  posting  a  letter 


xvi.  ]  TAX  A  TION.  1 2  7 

is  a  tax,  and  a  town  may  be  taxed  through  the  price  of 
gas  or  water. 

At  one  time  or  another,  and  in  one  country  or  an- 
other, taxes  have  been  raised  in  every  imaginable  way. 
The  Poll  Tax  was  a  payment  required  from  every 
poll  or  head  of  the  population,  man,  woman,  or  child.^ 
This  was  considered  a  very  grievous  tax  and  has  never 
been  levied  in  England  since  the  reign  of  William  III. 
The  Hearth  Tax  consisted  of  a  payment  for  each 
hearth  in  a  house ;  then  a  rich  family  with  a  large 
house  and  many  hearths  paid  far  more  than  a  poor 
family  with  only  one  or  two  hearths.  But  as  people 
did  not  like  the  taxgatherer  coming  into  the  house  to 
count  the  hearths,  the  window  tax  was  substituted,  be- 
cause the  tax-gatherer  could  walk  round  the  outside  of 
the  house,  and  count  the  windows.  Now,  in  England, 
we  do  not  tax  the  light  of  heaven  at  all,  but  we  fix  a 
man's  payments  by  the  rent  of  his  house,  the  amount 
of  his  income,  or  the  quantity  of  wine  and  beer  he 
drinks. 

96.  Direct  and  Indirect  Taxes.  Taxes  are 
called  direct  taxes  when  the  payment  is  made  by  the  ^/. 
person  who  is  intended  to  bear  the  sacrifice.  This  is  • 
the  case  generally  with  the  assessed  taxes,  or  the  charges 
made  upon  people  who  have  menservants,  private  car- 
riages, &c.  As  most  people  keep  carriages  only  for 
their  own  comfort,  they  cannot  make  other  people  re- 
pay the  cost  of  the  tax.  But  if  a  carrier  or  tradesman 
were  taxed  for  his  carts,  he  would  be  sure  to  make  his 
customers  repay  it ;  thus  the  tax  would  not  be  direct, 
and  carriages  employed  in  trade  are  therefore  exempt 
from  taxation.  Other  taxes  in  England,  which  are 
generally  direct  ones,  are  the  income-tax,  the  dog-tax, 
the  poor-rates,  the  house-duty;  but  a  tax  which  is 
usually  direct,  may  sometimes  become  indirect,  and  it 
is  often  impossible  to  say  what  is  really  the  incid- 
ence of  a  tax,  that  is,  the  manner  in  which  it  falls 
up$n  different  classes  of  the  population. 

Indirect   taxes   are   paid   in  the   first  place  by 


I28         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

merchants  and  tradesmen,  but  it  is  understood  that 
they  recover  the  amount  paid  from  their  customers. 
The  principal  part  of  such  taxes  in  England  consist  of 
the  customs  duties  levied  upon  wine,  spirits, 
tobacco,  and  a  few  other  articles,  when  they  are 
imported  for  use  in  this  country.  Excise  duties 
are  similar  duties  levied  upon  like  goods  produced 
.within  the  kingdom.  These  were  called  excise, 
because  it  was  originally  the  practice  actually  to  cut 
off  a  portion  of  the  goods  themselves,  and  take  it  as 
the  duty.  In  England,  excise  duties  are  now  levied 
on  a  few  things  only,  such  as  spirits  and  beer ;  and 
care  is  taken  to  make  the  excise  duty  as  nearly  as 
possible  equal  to  the  customs  duty  on  the  same  kind 
of  imported  goods.  English  brandy  pays  a  duty 
equivalent  to  that  on  French  brandy,  and  the  matter 
is  arranged  so  that  the  duty  shall  neither  encourage 
nor  discourage  the  making  of  English  brandy.  Thus 
the  trade  is  left  as  free  as  it  can  be,  consistently  with 
raising  a  large  revenue.  Another  important  class  of  in- 
direct taxes"  consist  of  the  stamp  duties,  which  are 
payments  required  from  people  when  they  make  legal 
agreements  of  various  kinds.  According  to  law,  deeds, 
leases,  cheques,  receipts,  contracts,  and  many  other 
documents  are  not  legally  valid  unless  they  be  stamped, 
and  the  cost  of  the  stamp  varies  from  a  penny  up  to 
hundreds  or  even  thousands  of  pounds,  according  to 
the  value  of  the  property  dealt  with.  Stamp  duties 
are  probably  in  most  cases  indirect  taxes,  but  it 
would  be  very  difficult  to  say  who  really  bears  the 
cost;  this  must  depend  much  upon  circumstances. 

97.  Maxims  of  Taxation.  Adam  Smith  first 
stated  certain  rules,  or  maxims,  which  should  guide 
the  statesman  in  laying  on  taxes ;  they  are  such  good 
rules  that  everybody  who  studies  political  economy 
ought  to  learn  them.  They  are  as  follows — 

(i)  The  subjects  of  every  state  ought  to  contribute 
towards  the  support  of  the  government,  as  nearlf  as 
possible,  in  proportion  to  their  respective  abilities;  that 


XVL]  TAXATION,  129 

is,  in  proportion  to  the  revenue  which  they  respectively 
enjoy  under  the  protection  of  the  state. 

This  we  may  call  the  maxim  of  equality,  and 
equality  consists  in  everybody  paying,  in  one  way  or 
another,  about  an  equal  percentage  of  the  wages, 
salary,  or  other  income  which  he  receives.  In  England 
the  taxes  amount  to  something  like  ten  per  cent,  or 
one  pound  in  every  ten  pounds,  and  this  is  pretty 
equally  borne  by  different  classes  of  society.  It  is 
probable,  however,  that  the  very  rich  do  not  pay  as 
much  as  they  ought  to  do.  At  the  same  time  those 
who  are  too  poor  to  pay  income  tax,  and  who  do  not 
drink  nor  smoke,  are  almost  entirely  free  from  taxation 
in  this  country ;  they  pay  very  little,  except  poor  rates. 
It  would  be  impossible  to  invent  any  one  tax  which 
could  be  equally  levied  upon  all  persons.  The  income 
tax  is  a  tax  of  so  many  pence  in  every  pound  of  a 
person's  income,  but  it  is  impossible  to  make  people 
state  their  income  exactly,  and  poor  people  could 
never  be  got  to  pay  such  a  tax.  Hence  it  is  necessary 
to  put  on  a  certain  number  of  different  taxes  so  that 
those  who  manage  to  escape  one  tax  shall  be  made  to 
pay  in  some  other  way. 

(2)  The  tax  which  each  individual  is  bound  to  pay 
ought  to  be  certain,  and  not  arbitrary.  The  time  of 
payment,  the  manner  of  payment,  the  quantity  to  be 
paid,  ought  all  to  be  clear  and  plain.  This  is  the 
maxim  of  certainty,  and  it  is  very  important, 
because,  if  a  tax  is  not  certainly  known,  the  tax- 
gatherers  can  oppress  people,  requiring  more  or  less 
as  they  choose.  'In  this  case  it  is  very  probable  that 
they  will  become  corrupt,  and  will  receive  bribes  to 
induce  them  to  lower  the  tax.  On  this  account  duties 
ought  never  to  be  levied  according  to  the  value  of 
goods,  or  ad  valorem,  as  it  is  said.  Wine,  for  instance, 
varies  in  value  immensely  according  to  its  quality  and 
reputation,  but  it  is  impossible  for  the  custom-house 
officer  to  say  exactly  what  this  value  is.  If  he  takes 
the  statement  of  the  people  who  import  the  wine,  they 


1 3o        PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

v ' — — 

will  be  tempted  to  tell  lies,  and  say  that  the  value  is 
less  than  it  really  is.  And  as  it  would  not  be  easy  to 
prove  the  guilt  either  of  the  customs  officer  or  of  the 
importers,  it  is  to  be  feared  that  some  officers  will 
receive  bribes.  But  if  the  wine  is  taxed  simply  ac- 
cording to  its  quantity,  the  amount  of  duty  is  known 
with  great  certainty,  and  fraud  can  easily  be  detected. 
The  same  remarks  apply  more  or  less  to  every  kind  of 
goods  which  varies  much  in  quality. 

(3)  Every  tax  ought  to  be  levied  at  the  time,  and  in 
the  manner,  in  which  it  is  most  likely  to  be  convenient 
for  the  contributor  to  pay  it.     This  is  the  maxim  of 
convenience,  and  the  reason  for  it  is  sufficiently  obvi- 
ous.    As  government  only  exists  for  the  good  of  the 
people  at  large,  of  course  it  ought  to  give  the  people 
as  little  trouble  as  possible.      And  as  the  Government 
has  immensely  more  money  at  its  command  than  any 
private  person,  it  ought  to  arrange  so  as  to  demand 
a  tax  when  the  taxpayer  is  likely  to  be  able  to  pay  it 
Thus  there  seems  to  be  no  sufficient  reason  why  the 
government  should  make  people  pay  the  income-tax 
in  January,  when  they  are  likely  to  have  plenty  of 
other  bills  to  pay.      In  respect  of  this  maxim,  the 
customs  and  excise  duties  are  very  good  taxes,  because 
a  person  pays  duty  whenever  he  buys   a   bottle   of 
spirits  or  an  ounce  of  tobacco.     If  he  does  not  want 
to  pay  taxes,  let  him  leave  off  drinking  and  smoking, 
which  will  probably  be  better  for  him  in  every  way. 
At  any  rate,   if  he  can  afford  to  drink  spirits   and 
smoke    tobacco,    he    can    afford   something   for   the 
expenses  of  government.      The  penny  receipt  duty, 
again,  is  in  this  respect  a  good  tax,  because  when  a 
person  is   receiving  money  he  is  sure  to  be  able  to 
spare  one  penny  for  the  State,  and  he  is  generally  so 
glad  to  get  his  money  that  he  thinks  nothing  of  the 
penny. 

(4)  Every  tax  ought  to  be  so  contrived  as  both  to 
take  out  and  to  keep  out  of  the  pockets  of  the  people 
as  little  as  possible  over  and  above  what  it  brings 


xvi.  ]  TAX  A  TIOJV.  j  3  ! 

into  the  public  treasury.  This  is  the  maxim  of 
economy.  Thus,  a  tax  ought  not  to  be  imposed  if 
it  would  require  a  great  many  officers  to  collect  it, 
and  thus  waste  much  of  what  is  collected,  or  if  it 
disturbs  trade  and  makes  things  dearer  than  they 
would  otherwise  be.  Again,  the  government  ought 
not  to  cause  people  to  lose  time  and  money  in  paying 
the  taxes,  because  this  is  just  as  bad  for  them  as  if 
they  paid  so  much  more  taxes.  In  this  respect  the 
stamp-duties  are  very  bad  taxes,  because  in  many 
cases  it  is  requisite  for  a  person  to  take  his  deeds  and 
other  documents  to  the  stamp-office  and  lose  his  time, 
or  else  employ  lawyers  and  agents  to  do  it  for  him, 
who  charge  considerable  fees.  So  troublesome  are 
some  of  the  stamp-duties  that  in  many  cases  people 
neglect  to  have  their  agreements  stamped,  and  prefer 
to  trust  to  the  honesty  of  those  they  deal  with.  Such 
agreements  are  thus  often  rendered  of  no  legal  value, 
and  the  government,  for  the  sake  of  sixpence  or  a 
shilling,  practically  denies  law  to  the  people. 

98.  Protection  and  Free  Trade.  Almost 
every  government  has  employed  taxation  at  one 
time  or  another,  for  the  purpose  of  encouraging  in- 
dustry within  the  country.  It  is  often  supposed  that 
if  purchasers  are  prevented  from  buying  foreign 
goods,  they  will  have  to  buy  home-made  goods,  and 
thus  manufacturers  at  home  will  be  kept  busy,  and 
there  will  be  plenty  of  employment.  This  is  altogether 
a  fallacy,  which  we  may  call  the  fallacy  of  Protec- 
tion, but  it  is  one  which  readily  takes  hold  of 
people's  minds.  No  tradesman  or  manufacturer 
likes  to  see  himself  underbid  by  those* who  offer 
better  goods  at  lower  prices.  When  foreign  goods, 
then,  are  preferred  by  purchasers,  the  home  manufac- 
turers of  such  goods  complain  bitterly,  and  join 
together  to  persuade  people  that  they  are  being 
injured  by  foreign  trade.  There  is  still  so  much 
national  pride  and  animosity,  that  a  nation  does  riot 
like  to  be  told  that  it  is  being  beaten  by  foreigners. 

12 


1 32         PRIMER  OF  POLITICAL  ECONOMY.          [CH. 

The  manufacturers,  misled  by  their  own  self-interest, 
use  all  kinds  of  bad  arguments  to  show  that  if  foreign 
products  were  kept  out  of  the  country,  they  could  make 
as  good  ones  in  a  little  time,  and  then  they  could 
employ  many  people,  and  add  to  the  wealth  of  the 
country.  They  fall,  in  fact,  into  the  fallacy  of 
making  work  before  described  (section  55),  and 
argue  as  if  the  purpose  of  work  was  to  work,  and  not 
to  enjoy  abundant  supplies  of  the  necessaries  and 
comforts  of  life. 

Now  it  is  impossible  to  deny  that  certain  owners  of 
lands  and  mines  and  w&rks  may  be  benefited  by 
putting  duties  upon  foreign  goods  of  the  kind  which 
they  want  to  produce.  Those  who  are  already  enjoy- 
ing the  advantage  of  such  improper  duties  may, 
of  course,  be  injured  when  they  are  removed.  But 
what  we  have  in  political  economy  to  look  to,  is  not 
the  selfish  interests  of  any  particular  class  of  people, 
but  the  good  of  the  whole  population.  Protectionists 
overlook  two  facts — (i)  that  the  object  of  industry 
is  to  make  goods  abundant  and  cheap ;  (2)  that  it 
is  impossible  to  import  cheap  foreign  goods  without 
exporting  home-made  goods  of  some  sort  to  pay  for 
them. 

We  have  already  learnt  the  obvious  truth  that  wealth 
is  to  be  increased  by  producing  it  in  the  place  most 
suitable  for  its  production.  Now  the  only  sure  proof 
that  a  place  is  suitable  is  the  fact  that  the  commodities 
there  produced  are  cheap  and  good.  If  foreign  manu- 
facturers can  underbid  home-producers,  this  is  the 
best,  and  in  fact  the  only  conclusive  proof  that  the 
things  carf  be  made  more  .cheaply  and  successfully 
abroad.  But  then  it  may  be  objected,  what  is  to  be- 
come of  workmen  at  home,  if  all  our  supplies  be  got 
from  another  country.  The  reply  is,  that  such  a  state 
of  things  could  not  exist.  Foreigners  would  never 
think  of  sending  us  goods  unless  we  paid  for  them, 
either  in  other  goods,  or  in  money.  Now,  if  we  pay 
in  goods,  workmen  will  of  course  be  needed  to  make 


xvi.]  TAXATION.  133 

those  goods ;  and  the  more  we  buy  from  Abroad, 
the  more  we  shall  need  of  home  produce  to  send  in 
exchange.  Thus,  the  purchase  of  foreign  goods  en- 
courages home  manufactures  in  the  best  possible  way, 
because  it  encourages  just  those  branches  of  industry 
for  which  the  country  is  most  suited,  and  by  which 
wealth  is  most  abundantly  created. 

99.  The  Mercantile  Theory.  Perhaps,  how- 
ever, it  will  be  objected  that  our  foreign  imports  will 
be  paid  for  not  in  goods  but  in  money ;  thus  the 
country  will  be  gradually  drained  of  its  wealth.  This 
is  the  old  fallacy  of  the  Mercantile  Theory, 
which  was  to  the  effect  that  a  country  becomes  rich  by 
bringing  gold  and  silver  into  it.  It  is  an  absurd 
fallacy,  because  we  can  get  no  benefit  by  accumulat- 
ing stocks  of  gold  and  silver.  In  fact,  to  keep  pre- 
cious metals  causes  a  loss  of  interest  upon  their 
value ;  people  who  are  rich  may  afford  to  have 
costly  plate,  and  the  pleasures  they  derive  from  it 
may  be  worth  the  interest.  But  to  have  more  gold, 
or  silver  money  than  is  just  sufficient  to  make  the 
ordinary  payments  of  trade  causes  dead  loss  of  in- 
terest. Nor  is  there  any  fear  that  the  country  will 
be  drained  of  money  entirely.  For,  if  money 
became  scarce,  its  value  would  rise  according  to 
the  laws  of  supply  and  demand,  and  prices  of  goods 
would  fall ;  then  imports  would  decrease,  and  ex- 
ports increase.  It  is  only  a  country  like  Australia  or 
North  America,  possessing  gold  or  silver  mines,  which 
could  go  on  paying  money  for  its  imports,  and  then  it 
is  quite  right  it  should  do  so,  the  metal  being  a  com- 
modity which  can  be  cheaply  produced  in  the  country. 
Gold  and  silver  must  be  got  out  of  mines,  and  there- 
fore a  country  which  buys  goods  with  money  must 
either  have  such  mines,  or  else  get  the  metal  from 
other  countries  which  possess  mines.  In  no  case,  then, 
can  we  import  foreign  commodities  without  producing 
at  home  goods  of  equivalent  value  to  pay  for  them, 
and  thus  we  see  beyond  all  doubt  that  foreign  trade  is 


I34     PRIMER  OF  POLITICAL  ECONOMY.      [CH.  xvi. 

a  means  of  increasing,  not  decreasing,  the  activity  of 
industry  at  home. 

100.  Is  Political  Economy  a  Dismal  Science? 
This  is  only  a  Primer,  a  very  brief  and  elementary 
account  of  some  parts  of  political  economy,  and  it  is 
evidently  impossible  to  argue  out  the  subjects  of  such 
a  science  in  so  small  a  compass.     But  the  purpos'e 
of  this  little  treatise  will  be  fulfilled  if  those  who  begin 
with  the  primer  can  be  persuaded  to  go  on  and  study 
larger  works  on  the  science.     But  even  he  who  has 
read  only  thus  far  must  know  that  political  economy 
is  no  cold-blooded  or  dismal  science,  as  people  say. 
Is   it   a   dismal    thing    to    relieve    the    labourer    of 
his  load,  or  to  spread  his  table  with  the  most  nutritious 
food?      No  doubt  the  science  is  dismal  enough   so 
far  as  it  leads  us  to  reflect  upon  the  needless  misery 
existing   on    every  side.      It   is   dismal   to   think    of 
the  hundreds  of  thousands  who  lengthen  out  a  weary 
life  in  workhouses  and  prisons  and  infirmaries.    Strikes! 
are  dismal ;  lock-outs  are  dismal ;  want  of  employment,! 
bankruptcy,  dear  bread,  famine,  are  all  dismal  things.  I 
But  is  it  political  economy  which  causes  them  ?     Is  |x 
not  our  science  more  truly  described  as  that  Vi 
beneficent  one,  which,  if  sufficiently  studied,    TU 
would  banish  such  dismal  things,  by  teaching 
us  to  use  our  powers  wisely  in  relieving  the    j\ 
[labours  and  misery  of  mankind. 

END. 


Si 


OF 

HVERSITY 

. 

Xw   r» A ,  lf.~. 


YA  07720 


THE  UNIVERSITY  OF  CALIFORNIA  LIBRARY 


